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7-24-2023 7:32pm
OPINIONS in Contrast: Merger of Dedham Savings with South Shore Bank
Darlene Cancell
Editor
Community members who bank with Dedham Savings or South Shore Bank may be interested in the following two articles, written from two opposing points of view regarding whether a merger of the holding companies of the two banks should be approved by regulators.
In the first article, a community member proposes a stock conversion as an alternative to the merger as more beneficial to the customers of Dedham Savings.
In the second article, the chief executive officers of Dedham Savings and South Shore Bank explain the merger from the banks' perspective.
Westwood Minute takes no position on the articles, below. Presentation and layout of this posting is limited by the online platform used by Westwood Minute. Placement and order of the submissions should not be interpreted as endorsement of one position over another.
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Stock Conversion is Alternative to Merger That Would Better Benefit Depositor-Owners
By Professor Peter T. Ittig
The Dedham Institution for Savings (Dedham Savings) is a local savings bank that has proposed a merger with South Shore Bank that requires approval by the Commonwealth. Dedham Savings is a significant local institution with about $2 billion in assets and 9 branches in this area including Westwood, Norwood, and Dedham (HQ).
You may be aware of this proposal from the letter sent to bank customers or in various media. However, you may not be aware that, if you are a depositor with Dedham Savings, you are also an owner as this is a mutual savings bank.
In my opinion, the proposed merger is not in the interest of the owners/depositors nor of the community. I suggest that depositors and residents express their opposition to the proposal for the reasons mentioned below. I suggest an alternative that would be much more beneficial to the owners/depositors.
A public hearing on the proposal is scheduled by the state Division of Banks for 10:30 a.m. on August 1, 2023. Written public comments will be accepted until August 7, 2023, by letter or by e-mail.
The proposal is relatively unusual in that both institutions would merge into a single “mutual holding company” (MHC) without altering the operations of the two banks. Under the terms of the agreement, “both Dedham Savings and South Shore Bank will continue to operate independently as two institutions”. The agreement also includes a succession plan with a retirement agreement for the CEO of Dedham Savings who will serve as the initial CEO of the holding company and retire in 3 years. The CEO of South Shore Bank will then become CEO of the holding company. Until then, both will remain as CEO’s of their respective institutions.
Dedham Savings is not an ordinary corporation owned by stockholders who are paid dividends and would need to approve a merger. Rather, it is a mutual institution that is owned by depositors. The interests of the owners/depositors should not be a secondary consideration and they should be consulted.
This kind of transaction is only possible because the governing board is not elected by the owners/depositors and does not represent them. Rather, the governing board is effectively chosen by the managers of the bank. This is a flawed governance structure that may result in institutions being more sensitive to the interests of the managers than those of the true owners. For example, while this savings bank may currently earn over 5% interest on short-term US Treasury Bills and 6%-7% on mortgages, it pays only 0.05% interest on regular savings accounts. South Shore Bank is worse in this respect as it currently pays only 0.01% interest on regular savings accounts. They could do better for the owners/depositors. The banks’ earnings are going elsewhere.
The proposed merger does not offer any significant benefits or convenience for the current owners or for the community. It may also reduce the local focus of Dedham Savings for charitable contributions and otherwise. The proposed merger may also have an anti-competitive aspect in that both banks have gradually expanded their branch networks but will probably not encroach on the adjacent service area of the other institution after the merger. The merger appears to primarily serve the interests of the managers who may obtain greater benefits from a larger institution.
An alternative to this proposal that may provide substantial benefits to the current owners/depositors of Dedham Savings would be a stock conversion in which the current depositors/owners would be offered marketable shares representing ownership of an institution with current owner/shareholder equity of about $222 million. The new shareholders could then elect a governing board that would represent their interests including consideration of possible mergers. Other mutual savings banks in Massachusetts have done stock conversions.
I encourage you to mail or e-mail your opinion to the Mass Board of Bank Incorporation. I will recommend that the Commonwealth reject the proposed merger as not in the public interest nor in the interest of the owners/depositors.
- Deadline for receipt of comments: close of business on Monday, August 7, 2023.
- By E-mail: dob.comments@mass.gov
- By US mail: Mass. Board of Bank Incorporation, 1000 Washington Street, 10th Floor, Boston, Massachusetts 02118-6400
Peter Ittig is a former member of the Westwood Finance & Warrant Commission and a retired professor of the University of Massachusetts Boston College of Management.
Updated 9/1/2023 at 6:27 p.m.
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Merger Offers Benefit of Scale When Competing Against Large Banks is Costly
By Peter Brown and James Dunphy
Dedham Savings and South Shore Bank have been at the heart of local communities for generations. Families and businesses have been banking with us for nearly 200 years. As we look ahead to the next 200 years, our goals are to remain mutual community banks, which means keeping our customers and our communities at the heart of what we do.
The Challenge
Competing effectively against the large national banks in our markets is extremely costly. They have the benefit of scale to develop and offer the latest technologies and address ever-changing regulatory requirements. They attract local customers but don’t typically invest back into the community as deeply as Dedham Savings, South Shore Bank, and other community banks do. The challenge we face is how to compete effectively yet remain true to our roots.
The Solution
After thoughtful deliberation, the boards of directors and the management teams of Dedham Savings and South Shore Bank have chosen to merge our individual holding companies (parent companies) into one single holding company. This will be a merger of holding companies rather than banks and remains subject to regulatory approval. Once approved, the combined holding company will own both independent community banks, with total assets over $4 billion, and the two banks will continue to operate under their current names and brands.
South Shore Bank and Dedham Savings are similar in so many ways. Both are financially sound, are of similar asset size, offer high-quality financial products and services, and share a deep commitment to customer service and community support. By working together, we retain our mutual ownership structure, can pursue expanded business opportunities, and share cost burdens that free up resources to better serve our collective customers, today and well into the future.
Customer Banking Experience
In the short term, there is nothing our customers need to do and their banking experience with us will not change. Dedham Savings and South Shore Bank will begin to work together on products, services and outcomes that benefit our customers and the communities we serve. As we take these next steps, we will always reach out in advance to keep customers well informed of any action that may affect banking activities with us. We are grateful for our customers and look forward to continuing our journey together.
Peter Brown is the president and chief executive officer of Dedham Savings. James Dunphy is the president and chief executive officer of South Shore Bank.
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Thanks to Professor Peter Ittig, Mr. Peter Brown, and Mr. James Dunphy for contributing their thoughts to Westwood Minute. Westwood Minute takes no position on the opinion articles that it publishes, but seeks accurate and thoughtful commentary on topics that matter to our community, from a variety of differing viewpoints. Feel free to reply with your reaction below, or submit another perspective to WestwoodInAMinute@gmail.com.
