Westfield, Chicopee Merger Called a Logical Step on Many Levels
Dollars and Sense
Westfield Bank and Chicopee Savings Bank will come together in the first merger of locally based institutions in more than two decades. The $2.1 billion entity will have a solid foundation on both sides of the Connecticut River, said Westfield Bank President and CEO Jim Hagan, and the capital with which to undertake further territorial expansion.
He couldn’t pinpoint exactly when they started, but Westfield Bank President and CEO Jim Hagan said the talks he’s had with his counterpart at Chicopee Savings Bank, Bill Wagner — about this marketplace, the changes taking place in it, and a possible merger of their institutions — are not exactly a recent development.
Well, that’s true of those first few subjects of conversation, anyway.
“Bill and I had a number of discussions about this market, what was happening in it, bank consolidations, and the importance of size and scale in the industry,” said Hagan, who took the helm at Westfield in 2005, adding that these talks took a different tone and moved to a much higher level of intensity last fall.
That’s when both men were working together on what could be called the financial institutions’ component of the capital campaign to raise funds for the Sr. Caritas Cancer Center at Mercy Medical Center, and thus seeing much more of each other.
Summing up those discussions in general terms, Hagan said the two presidents agreed that there were many shortcomings — and, yes, risks — to remaining at their respective sizes (roughly $1.4 billion in assets at WB and $650,000 at CSB) given the many changes in the region’s banking community and the growing dominance of larger players.
He and Wagner eventually concluded that a merger of their banks not only made sense, but easily made the most sense of the many options that had presented themselves in recent years.
“We were both well-capitalized institutions, and we both felt strongly that we wanted to have what we considered to be a strong, independent bank headquartered in Western Massachusetts, one that would be locally owned and locally managed,” Hagan explained. “And, together, we felt we had a great opportunity to do just that.”
It took several more months to hammer out the details, but those discussions last fall certainly laid the groundwork for the announcement made early last month — that the two institutions would merge and thus become the second-largest locally managed bank in Hampden County, a $2.1 billion entity (to operate under the name Westfield Bank) with 21 locations in Western Mass. and Northern Conn.
As he elaborated on why this was the most sensible route for the banks, Hagan said this would be a merger of two local institutions with long histories in the region — and with footprints that featured hardly any overlap. (The only community where both banks have a branch is West Springfield, and those facilities are separated by several miles, not several blocks or even yards, as is often the case in a region almost always characterized by the term ‘overbanked.’)
These historical and geographical considerations will translate into fewer redundancies and therefore fewer reductions in workforce when the banks come together later this year, said Hagan, as well as less encroachment in this market by the larger regional banks that had shown interest in acquiring CSB.
Meanwhile, the two institutions have similar philosophies, nearly identical operating systems, and even a common marketing approach — one with the accent on a highly personalized brand of service, said Kevin O’Connor, senior vice president of Retail Banking, Retail Lending, and Marketing for Westfield Bank.
All of this should lead to a smooth transition and greater customer retention when the dust eventually settles, said Hagan, as well as a financial institution that will play a much more significant role in the local economy than the banks could individually.
For this issue and its focus on Banking & Financial Services, BusinessWest looks at this latest merger to reshape the local banking community and what the emerging $2.1 billion institution will bring to the proverbial table.
Points of Interest
As he returned to the subject of when and how this merger started to come together, Hagan said it was born from the knowledge — possessed by everyone conducting banking in this market — that size really does matter.
Elaborating, he said that size, or ‘scale,’ the other term used to convey the same points, amounts to far more than bragging rights or a significantly larger limit on commercial loans (although that certainly is an important factor, as will be discussed in a bit).
Instead, size is easily the most effective means with which to effectively cope with razor-thin margins and significantly deeper layers of regulation that resulted from the financial crisis — caused in good part by a lack of regulation of financial institutions — of nearly a decade ago.
“Size and scale creates efficiencies in terms of your operating costs,” he explained. “And having that 21-branch network creates efficiencies with products, services, and the delivery network.”
Elaborating, Hagan noted that, while there are few redundancies to result from this merger when it comes to physical locations, there will certainly be some redundancies — which can be reduced or eliminated — that involve operations and the staffing of same.
Meanwhile, the merger will enable the larger institution to spread the costs resulting from greater regulation over a wider footprint, he went on, adding that, in simple terms, the costs for the new, larger Westfield Bank will be significantly less than what the two current institutions are paying together at present.
This phenomenon goes a long way toward explaining much of the recent movement within the market, and why a number of brands have disappeared from the landscape.
Along with these mergers have come some growing pains during the process of transforming two banks into one, Hagan acknowledged, adding quickly that he expects this merger to go rather smoothly because the banks operate on different platforms of the same system and there will be few of what would be called ‘institutional changes.’
“What we found is that the culture of Chicopee Savings Bank is very similar to the culture of Westfield Bank,” he explained. “So we expect that the integration of the systems, the people, and the philosophies will go very smoothly.”
But efficiencies constitute only one of the benefits of size, he went on, adding that the merger with CSB takes the Westfield Bank name to places it has never been (physically, anyway), starting with Chicopee, the second-largest city in Western Mass. and one with a huge business community.
Chicopee also has branches in Ludlow, South Hadley, and Ware, locations that will greatly increase Westfield Bank’s presence on the east side of the Connecticut River, which is limited (if that’s the right term) at present to locations in Springfield, East Longmeadow, and Enfield, Conn.
And while the bank has historically done business with residents and businesses in virtually all communities in Western Mass. and Northern Conn., including those on the east side of the river, having one’s name on buildings in more of those cities and towns is a tremendous benefit, Hagan explained.
“A greater percentage of the businesses we lend to — the machine shops, the universities, healthcare institutions — are on that [east] side of the river,” he explained. “And we think we can increase our loan portfolio, our deposits, and more based on the success we’ve already had with a limited presence in those communities.”
In practical terms, the merger will significantly increase the emerging bank’s lending capacity, said O’Connor, noting that the current limit at WB is $22 million, and for CSB it’s $16 million. The larger Westfield Bank will have a $35 million limit. This will enable it to write more loans and generate more deals without the need to collaborate with other institutions, he explained.
“There would less need to do participations with other banks,” he said of the higher limit. “And it broadens the view of what Westfield Bank can do for people in sectors like manufacturing, healthcare, and others that we do well in, even though we can do a lot now.”
Beyond this greater lending capacity, the merger will enable Westfield Bank to greatly accelerate that process of territorial expansion that has been ongoing for several years now, said Hagan.
Significant milestones include a move into downtown Springfield (Tower Square) in 2000, a move that has paid significant dividends, said Hagan, noting more than $65 million in deposits at that location, as well as the East Longmeadow branch, opened in 1997.
These steps were followed by penetration into the Northern Conn. market with branches in Granby, just a few miles from a location in Southwick, in 2013, and the one in Enfield, opened a year later.
Both moves were common-sense expansions of what is truly a network, he said, adding that both Connecticut branches, and especially the one in Enfield, have done extremely well despite the fact that they have the name of a small Western Mass. city over the door.
When this merger is completed, that name should resonate even more, said Hagan, who anticipates further territorial expansion in the years to come.
When asked where it might take place, he was understandably vague, but did offer some insight, hinting that the institution will likely look south to Connecticut, east toward Quabbin and perhaps Worcester County, and within the city of Springfield for potential opportunities. And the merger greatly increases the list of possibilities.
“With the combined capital we’d have, we’d be able to look at additional acquisitions in different marketplaces where we may have an interest in expanding,” he explained. “We like the Northern Connecticut marketplace, we would look at Central Mass., and I’d like to expand in Springfield; there are many possibilities.
“But first and foremost,” he went on, “we want to make sure this merger is successful.”
As he talked about Chicopee, the pending loss of the community’s name from the institution that has had a huge presence in its downtown since 1854, and how well the new name would play in that proud community, Hagan acknowledged that all this will constitute a significant change that might take a while for some to digest and accept.
Then again, he told BusinessWest, the reaction he’s seen thus far in that city has been overwhelmingly — but not, in his mind, at least, surprisingly — positive.
“That’s because this is the first in-market merger in more than 25 years, and because we’re a local institution, and because of our reputation of being community leaders and community supporters,” he said by way of explaining his theory. “It’s gone very well.”
And he expects things to continue to go well, for all those reasons listed above, but mostly because of what they all verify — that this is the option that makes the most sense for both institutions.
George O’Brien can be reached at [email protected]