Cape & Islands News

Cape Cod Five files to change structure

Sorry, no IPO here! Just a tool for long-term strategy and local focus

By Teresa Martin

Cape Cod Five Cents Savings Bank has filed paperwork to reorganize into a mutual holding company, according to published legal notices.

 In some places, this move opens the door to a capital-raising initial public offering (IPO) by the organization or even eventual acquisition of the bank -- but the Cape Cod Five structured its filing to prevent both those scenarios.

"We set up a structure that is very common for mutual banks, but we did in a way that is a little unique in that we have just one share, owned by the holding company," said Dorothy A. Savarese, president and CEO of The Cape Cod Five Cents Savings Bank.

Filings on record

Click here to see a larger version of the notice as it appeared in the local daily today.According to Federal Reserve Bank records, The Cape Cod Five Mutual Company of Harwich Port on January 27 2012 sought to become a mutual bank holding company by acquiring 100% of the voting shares of the current Cape Cod Five.

Additional legal notices describe this as a multi-stage transaction that begins by creating a new mutual savings bank. This new bank then reorganizes into a mutual holding company with a subsidiary banking institution in stock form.  Lastly, the current Cape Cod Five Cents Saving Bank merges into the newly formed stock savings bank and continues operating under the Cape Cod Five name.

One term, many uses

Banks adopt this type of structure for multiple reasons. For many, a stock structure enables the bank to raise capital from the markets. This means the bank can tap into funds for corporate investment, growth, or other business purposes.

In other cases, the conversion has served as the prelude for a sale to a larger bank.

Savarese says that the Cape Cod Five has no interest in either of these scenarios and, in contrast to these approaches, used the restructuring as a tool to prevent them.

"We did it for flexibility." - Dorothy Savarese, CC5 President & CEO

"We did it for flexibility," she said.

The 157-year old organization plans to use the holding company structure to ensure the bank remains tied to the community and held by its members. She also said it could serve as a possible future platform for developing or buying new businesses, keeping each as a separate and distinct entity.

Umbrella

She describes the restructuring as being a bit like an umbrella.  From the seagull eye above, the bank remains a mutual organization. But from within, different kinds of operations can co-exist without having to roll into one company.

"As we go down the road and develop different products and services, this give us more opportunity to be flexible and take advantage of opportunities in the market place," explained Savarese.

Billion raised since the 70s

According to the US Securities and Exchange Commission (SEC), a "mutual" company is a company that is owned by its members instead by public or private shareholders.  Mutual savings banks first appeared in the early 1800; the structure was supposed to encourage the emerging middle class to put its cash in banks.

Deregulation in the 1970s started the wave of mutual to stock conversion. Since then, thousand of banks used deregulation to free up cash - according to Barron's more than $40 billion has been raised in this process.

During the 1990s, competition intensified and banks of all sizes came under increasing pressure to raise money, expand operations, and have financial tools for incenting employees. Many banks elected a mutual-to-stock conversion as means to this end.

For example, last week, in Wellesley MA, Wellesley Bank completed a similar conversion, but instead of issuing one stock to the mutual company, it created a community and public offering with millions of shares.

Its stock (WEBK) began trading January 26 on the Nasdaq Capital Market. During its subscription and community offering phase, 2,249,674 shares of common stock were sold in the subscription and community offering at $10.00 per share - raising $22.4 million. As of midday January 31 shares were trading at $12.03.

Not at the Five

"We have no need for additional capital; we are very well capitalized." - Dorothy Savarese, CC5 President & CEO Savarese stressed that the Five's intent is completely different.

She pointed out that instead of creating a stock entity with multiple shares, her bank took the rather unusual step of creating one lone share of stock. The mutual holding company owns that single share, creating the effect of a mutual bank that cannot be sold or traded.

"We have no need for additional capital; we are very well capitalized," she pointed out. "And we are really trying to make it very difficult for anybody in the future to change use from being a mutual organization."

"We have the same commitment to the community, to providing community banking services as always. We wanted the additional flexibility to grow and expand to meet future customer and community needs."

As intriguing as that statement sounds, the bank doesn't have any concrete plans for new launches. In fact, Savarese took pains to point out that many banks made this change decades ago and nothing changed. It's just good to plan ahead for what might come, she said.

"This is a thorough regulatory process," said noted. "You don't want to wait until there's something you want to do tomorrow to put it into place.

Time table

Now that the Cape Cod Five has filed for conversion, the application moves into the review cycle. On Feb 14, the state board of banking has a scheduled public hearing on the request in Boston.

In addition, the Board of Bank Incorporation and the Division of Banks will take written comments on the Cape Cod Five's filing through February 24.

Teresa Martin is a well-known Cape Cod technology and business leader who served as  C.E.O. of the Cape Cod Technology Council and was a founder and officer of the OpenCape Corporation, which is dedicated to fixing the Cape's dropped cell calls and upload issues. Read Teresa's tech blog, Cape Eyes on CapeCodToday.com here.