Salem Five to take over Stoneham Savings

By Todd Wallack. Globe Staff

Salem Five Cents Savings Bank, one of the most prominent community banks on the North Shore, has struck a deal to take over Stoneham Savings Bank, which has been struggling to rebuild its capital after losing millions of dollars in construction loans.

The deal gives Salem Five the chance to expand its base north of Boston, while allowing Stoneham Savings the opportunity to preserve operations and retain employees.

“It’s a wonderful marriage,” said Stoneham Savings chief executive Don Fournier. “We’re going to have a lot of employees happy that we found a solution. And our customer base will be relieved.”

Stoneham Savings is just the latest troubled Massachusetts financial institution to merge with a stronger partner in the wake of the recent financial crisis and recession. East Boston Savings Bank took over Mt. Washington Cooperative Bank in 2010. Middlesex Savings Bank acquired Strata Bank in 2009. . And in May, Webster First Federal Credit Union took over Saugus Federal Credit Union.

In addition, People’s United Bank bought Butler Bank in Lowell after it was seized by regulators a year ago.

Salem Five and Stoneham Savings will combine their holding companies after the deal is completed, according to the merger agreement. But Stoneham Savings will operate as an independent subsidiary of Salem Five with its existing management team for three years. And the bank will continue to use the Stoneham Savings brand (alongside the Salem Five moniker) for another two years.

The deal comes after Stoneham Savings was hurt badly by delinquent loans to commercial and residential real estate developers after the economic downturn. It lost $5 million last year, following a $9.2 million loss in 2009. Regulators ordered the bank to revamp its operations and raise capital in 2010.

The bank replaced its chief executive last year and had been exploring ways to rebuild its capital. It had talks with several partners before settling on Salem Five. Both Stoneham Savings and Salem Five are mutually owned banks (meaning they are owned for the benefit of their customers and the community, rather than individual stockholders) and were founded within days of one another in March 1855.

“We found Salem Five to be more like us than any of other institutions,” said Fournier, the Stoneham Savings chief executive.

The banks don’t plan layoffs, executives said. Salem Five has 475 employees and Stoneham Savings 85.

The deal also gives Salem Five, one of the largest community banks in the state, a chance to to grow its operations. Salem Five currently has 22 branches (with another slated to open in Burlington next quarter) and $2.8 billion in assets. Stoneham Savings, with $350 million in assets, has six locations, in Stoneham, Burlington, Malden, North Andover and Tewksbury.

Salem Five Chief Executive Joseph M. Gibbons said Stoneham Savings operates where Salem Five is focused on expanding, including Stoneham and other parts of Middlesex County. Salem Five opened its own branch in Stoneham in November.

“It will put us on the map in Middlesex County,” Gibbons said. “It is aligned perfectly with our strategic plans.”