Collinsville Savings Mutual Holding Co., the holding company for Collinsville Savings Society, has filed an application with the state Department of Banking to merge with and into Connecticut Mutual Holding Co., which owns two local community banks in the state.
If approved, the three banks would operate as independent subsidiaries under a single company, according to Dennis Cardello, president of Collinsville Savings Society.
Cardello said the merger will help his bank cut costs by allowing it to combine back office operations like accounting and check processing.
The merger would be the third in the state since the onset of the financial crisis.
Earlier this year, New England Bancshares, Inc. acquired Cheshire-based Apple Valley Bank & Trust Co. and also merged the operations of its two subsidiaries, Bristol-based Valley Bank and Enfield Federal Savings and Loan Association.
Cardello said his bank has been in talks with Connecticut Mutual Holding Company, which owns Northwest Community Bank and Litchfield Bancorp, about a possible deal for a few years.
In 2008, Canton-based Collinsville Savings Society, with $156 million in assets, recorded a net loss of $1.2 million, largely due to write-offs of soured investments in Fannie Mae and Freddie Mac.
Besides that, Cardello said his bank recorded strong core earnings of over $800,000.
Although community banks in Connecticut mostly avoided the pitfalls of subprime lending, they haven’t been immune to the fallout of the financial crisis.
Many Connecticut banks, like Collinsville Savings Society, suffered one-time investment losses in shares of Fannie Mae and Freddie Mac, the quasi-government entities that finance most of country’s mortgages and were taken over by federal regulators last year.
Banks are also facing intense pressure on earnings due to higher Federal Deposit Insurance Corp. insurance premiums and a potential onetime special assessment charge on deposits.
By combining with larger institutions, smaller banks can weather the storm a little easier.
“It’s difficult for smaller institutions to compete right now,” Cardello said.
William Bouton, a lawyer at Hinckley, Allen & Snyder LLP in Hartford, said he wouldn’t be surprised if more community banks in Connecticut combine their resources.
“I think you’re going to see a lot more conversations and actions over the next year,” Bouton said. “It’s difficult in this environment for banks to make money.”
Bouton said banks are coming together because they see opportunities for savings.
“It gives them the ability to spread out their expenses over a broader base,” Bouton said. “You can have one finance department become responsible for several banks. That makes a lot of sense especially for smaller institutions, which have a much more difficult time raising new capital.”
In January, David O’Connor, president and CEO of New England Bancshares, explained that his bank’s merger and acquisition activities were designed to improve the efficiencies of the company by eliminating the additional regulatory and administrative costs of maintaining two separately chartered banking subsidiaries with essentially the same products, services and operations.
“Given the focus and operating philosophy of each bank, the merger of our subsidiaries made a great deal of financial sense,” O’Connor said in January.
“The merger will allow us to gain efficiencies in a relatively painless manner and is expected to result in benefits to our customers and stockholders. “
Cardello said the current financial crisis wasn’t the main reason for the merger, but it helped push the deal forward.
“Our biggest concern was that we wanted to remain autonomous,” Cardello said. “This will allow us to do that because we will be allowed to keep our management and board.”
Greg Bordonaro is a Hartford Business Journal staff writer.
