Is Cape Cod 5 still a local bank?

A foray into Central Massachusetts begs the question. The answer? 'Yes, but …'

When the biggest of only three “local” banks remaining on Cape Cod announced a “partnership” a few weeks ago, joining forces with a bank based around Leominster and Worcester, creating a new “holding company” to hold both reins, there was an intake of breath among those who believe local lenders matter to a community’s health and values.

Fret not, says Cape Cod Five’s President Robert “Bert” Talerman. The Five is “very much still a local bank” -- headquarters here, no layoffs-consolidations, and a promise that the bank’s celebrated support for non-profits will continue:

“This is not a dilution of the $1.5 million that we contribute to our community on an annual basis,” he adds. “Actually, this year more like $1.7 million.”

Good to know, but skepticism is understandable.

The Cape has seen many acquisitions and mergers, heard many promises, and as the smoke cleared the landscape always looked very different.

Forty years ago Cape Cod had at least 15 local banks with names like Bass River Savings, Sandwich Cooperative, Barnstable County National, First National of Cape Cod, Falmouth Cooperative, Falmouth Bank and Trust, Merchants. The biggest was Cape Cod Bank & Trust, and when it sold to Bank North, mushrooming into TD Bank North then TD Bank, many local relationships severed (as happened with the other “local” banks), and never mended.

Talerman and team don’t expect the public to accept strictly on good faith that this is a different kind of event. He points to a crucial structural element, not often understood:

Cape Cod Five is a “mutual” bank.

This means there are no “owners” in the traditional sense. “No shareholders, no dividends, no stock,” Talerman continues. “A mutual bank cannot be acquired or sold.”

The bank has a large group of “corporators” responsible for board oversight, recruited from the community. This creates a bulwark blocking a path to sale; the bank would need a super-majority of corporators and board to agree to convert into a stock-owned bank, then wait three years, then sell the stock — ostensibly for a huge profit for a small group.

“That is not on the table, that is not a discussion item,” says Talerman.

Other encouraging telltales:

The Five, with $5.5 billion in assets, is far bigger than $1.5-billion Fidelity Bank (no relation to the mega-money manager). The Five will seat a majority on the holding company as well as take both CEO and board chair positions. Fidelity also is a mutual bank so this can’t be a purchase, it’s a “partnership,” each maintaining identity. But the Five is controlling at the upper level.

Meanwhile, the bank has assured customers they won’t notice when the combination formalizes, likely in early April.

“Will anything change for me?” asks the bank’s press release, assuming a customer’s voice.

“No,” the bank answers.

Then why do it?

Talerman says the banks are a great fit. Fidelity’s base is in older cities (Leominster, Worcester, Fitchburg, Gardener, as far east as Needham). “Sixty percent of their balance sheet is commercially focused,” he adds, “while 80 percent of our balance sheet is residential.”

Both are committed to maintaining “mutuality.” Fidelity reports $450,000 in charitable donations last year, comparable to the Five’s commitment for its size, with plans for a $5 million charitable foundation. Fidelity leans hard into community consciousness, including the motto, “A bank with a heart.”

Combining can improve “behind the curtain” performance and vendor contracts; “economies of scale” are often invoked in these situations, and Talerman mentions it, though he insists this will not mean Cape layoffs.

He also points to what he believes will be “a few years of a pretty tough economic environment that will challenge bank earnings.” Among other things, banks are locked into mortgages with fixed interest rates below five percent, but now need to pay depositors similar rates to keep assets in-house; no margin, no profit.

That argues for a diversified portfolio. As a mutual bank, “the only way we add to capital is by being healthy and generating net income,” he adds. And, it could be argued, by creating “partnerships.”

This is not the Five’s first push beyond the peninsula; “brick and mortar” branches extend to Wareham, Plymouth and across the Sound to the Vineyard. So there is an argument that “local” already has redefined, though previous expansion took place in what Talerman calls “the shadow” of the historic home with established, neighboring customer bases.

This is different. And when a new holding company gets to $7 billion in assets, it’s bound to attract interest from hedge fund types who have proven many times that where there’s a profitable will, they find a transactional way.

That’s not the motivation here, though growth is. So we can still think of the Five as a local bank, and shy away from financial paranoia, because of the personalities involved — and even more so because of a key element:

The feeling is mutual.

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