Two community banks serving Ulster and Orange counties, Wallkill Valley Federal Savings & Loan in Wallkill and Hometown Bank of the Hudson Valley headquartered in Walden announced their merger last week. Wallkill Valley, which will pay Hometown’s public shareholders $3.1 million in cash, will be the surviving entity. If the regulatory bodies agree to the transaction, the deal is expected to close in the latter half of next year.
As of June 2016, Wallkill Valley’s deposits increased in the most recent five years from $98.2 million to $142 million, while deposits at Hometown, until three years ago Walden Federal Savings and Loan Association, decreased from $130.7 million to $104.8 million during the same period. The headquarters of both banks, Wallkill Valley in southern Ulster County and Hometown in northern Orange, are three miles apart. Wallkill Valley traced its history back to 1913, Walden Federal to six years later.
Hometown’s loan portfolio at the onset of the Great Recession included several major development loans that went bad during the long recession. The bank lost about $11 million since 2012, and has been operating under federal supervision because of findings by the Office of the Comptroller of the Currency (OCC) of “unsafe and unsound practices by the bank relating to management, credit-risk management and asset quality.” The regulators may have forced the Walden-based bank’s sale.
According to a 2013 report from the NYS Department of Financial Services, the total number of community banks in the state decreased from 309 in 1992 to 220 in 2001 and to 178 in 2011. Like community banks nationally, New York’s community banks saw a decline in assets in those two decades. In 1992 their assets were $237 billion, and in 2011 $166 billion.
The attrition in the number of banks in the past two decades was more striking in the case of the smallest banks. Banking institutions with less than $100 million in assets decreased in New York from 99 to 22 in those 19 years, while those with $500 million or more in assets decreased only from 96 to 80. The only choice small community banks sometimes face is between selling to a national bank or combining with another community one.
The combined assets of the two Orange-Ulster banks are presently $320 million and their total deposits $256 million. The deposit total will rank the new Wallkill Valley Federal twelfth in the $11-billion Orange-Ulster banking market, with about a 2.6 percent market share. Community banks ahead of it on that Orange-Ulster list as of mid-2016 include Orange County Trust (sixth), Ulster Savings (eighth), Walden Savings (tenth) and Rondout Savings (eleventh).
Wallkill Valley president Mike Horodyski, a Highland resident and Ulster County IDA chairman, doesn’t focus on gaining market share from the other community banks as a goal. He’d prefer to see all the community banks gaining market share from the big national banks, the top handful of which have more than half the deposits in the local market.
Wallkill Valley has expanded since Horodyski became president six years ago. Its first branch in Milton has grown steadily and now has about $18 million in deposits. In 2012 the bank bought Highland Falls Federal Savings and Loan, which has about $29 million in deposits. In December 2014 it opened a new branch in Maybrook. And with the acquisition of Hometown’s branch offices in Walden, Monroe, Montgomery and Otisville and loan offices in Kingston and Newburgh, it will have eight branches and two loan offices.
Marge Rovereto, a Kingston resident who has recently become chief loan officer at Rondout Savings Bank, was previously president of the Walden Bank for five years. She consolidated two branches in Monroe and converted an underperforming full-service branch on Newburgh into a loan office. But she was unable to escape the increasing weight of the bank’s accumulation of non-performing loans, which tripled the cost of government insurance. The loss of part of its deposit base didn’t help Hometown, either.
“We each have a similar hometown-customer focus that will continue to make decisions locally and with a vested interest in our communities,” Hometown CEO Stephen Dederick was quoted as saying in the joint announcement issued by the two banks last Friday.
Taking over an ailing competitor in a marketplace presents both problems and opportunities. Wallkill Valley must combine the cultures of the two institutions and integrate their technologies and management procedures. Major customers need to be reassured. Personnel changes are always possible.
There are advantages to scale, of course. “Size really matters,” said Horodyski. If a bank merger is properly managed, a larger loan base and a single administration can allow efficiencies from diluted risk and more stable regulatory overhead.
Wallkill Valley is a mutual savings bank, owned mostly by members of the community of which it is a part. The bank’s website positions boasts that it offers “the prefect combination of old-fashioned values and modern technology.”
Just like the proverbial porridge, neither too hot nor too cold. “’Ahhh, this porridge is just right,’ Goldilocks said happily, and she ate it all up.
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