In the matter of Capebank, a Massachusetts co-operative bank, Hyannis, Massachusetts application for approval of a Supervisory Conversion from a mutual co-operative bank to a stock co-operative bank
By the Division of Banks
CapeBank, A Massachusetts Co-operative Bank, Hyannis, Massachusetts ("CapeBank" or "Bank") is a duly chartered co-operative bank with one banking office in Hyannis and assets of approximately $32 million as of June 30, 1995. The Bank has applied pursuant to chapter 170, section 26C of the Massachusetts General Laws and 209 CMR 33.00, Subpart B ("Subpart B") for permission to convert from a co-operative bank in mutual form to a co-operative bank in stock form. Subpart B governs supervisory stock conversions in which newly issued capital stock is sold to third parties and the account holders of a co-operative bank have no voting or subscription rights. In conjunction with this application, certain related authorities were granted by the Board of Bank Incorporation and are set forth in a separate vote of authorization issued by the Board on May 19, 1995.
Under Subpart B, the Commissioner must determine that there is no equity value realizable by the mutual account holders. In Administrative Bulletin 34-1 (the "Bulletin") issued on October 29, 1992, the Division determined that for the purposes of a supervisory conversion no equity value would be realized upon the liquidation of a bank which is "significantly undercapitalized" or "critically undercapitalized" as those terms are defined in regulations of the Federal Deposit Insurance Corporation ("FDIC") at 12 CFR ยง 325.103.
CapeBank, at December 31, 1994, had stated capital of approximately $3.8 million. CapeBank owes the Co-operative Central Bank approximately $3.17 million out of $5.57 million in capital assistance originally granted to CapeBank on April 14, 1987 to enable it to qualify for FDIC deposit insurance. The Co-operative Central Bank is authorized to provide capital assistance to its member co-operative banks pursuant to St. 1934, c.73. Traditionally, such assistance has been provided on a relatively short term basis. Since its inception CapeBank has generated minimal earnings. As a result, Capebank has repeatedly missed scheduled payments of interest and principal under its capital assistance agreement with the Co-operative Central Bank. In addition, approximately $1 million is owed by CapeBank to certificate holders in a Special Surplus Fund established at the time CapeBank was chartered.On December 19, 1995, the FDIC approved the retirement of the mutual capital certificates. Additionally, the FDIC approved CapeBank's conversion to stock form through a non-objection letter issued on December 29, 1995. On January 8, 1996, immediately prior to this transaction, CapeBank repaid the Co-operative Central Bank approximately $2.8 million in full satisfaction of all outstanding financial assistance under a separate agreement between the two parties. As a result of the repayment of the mutual capital certificates, CapeBank has become "significantly undercapitalized" within the meaning of the Bulletin.
This multi-step transaction will resolve a number of regulatory concerns relative to CapeBank. A total capital contribution of $8 million will recapitalize CapeBank and bring it into conformance with governing FDIC capital requirements for a "well capitalized" institution. The capital infusion will be made by a group of investors who will purchase a total of $8 million of the Bank's capital stock in two installments. One of the investors, who has extensive banking experience rehabilitating institutions with financial weaknesses, became CapeBank's Chief Executive Officer in mid 1995. This capital infusion will allow the Bank to meet capital requirements and afford the opportunity for future growth and expansion of the Bank's deposit base, mortgage lending operations and other activities permitted by law. Moreover, the Co-operative Central Bank is repaid the financial assistance it provided CapeBank in order to secure FDIC insurance coverage of its deposits.
Based upon a review of the record, CapeBank was found to have complied with all the statutory and regulatory filing requirements necessary for a completed supervisory stock conversion application, including the requirement that such supervisory conversion has been authorized by an affirmative vote of at least two-thirds of CapeBank's Board of Directors. The completed application and all other material required to be filed have been considered in accordance with Massachusetts General Laws and applicable stock conversion regulations.
By restoring the financial soundness of the Bank, the conversion will benefit the community in which it operates. This transaction is vastly preferable to instituting further serious regulatory action. Other banks will not be adversely affected by the conversion and the public's access to credit within CapeBank's communities will also not be adversely affected.
Accordingly, on the basis of the record indicated above and a determination that all provisions of 209 CMR 33.16 have been met, I hereby approve the Application for Supervisory Conversion, the Plan of Voluntary Supervisory Conversion of CapeBank, A Massachusetts Co-operative Bank, ("Plan of Supervisory Conversion"), including the Amended and Restated Charter of CapeBank, A Massachusetts Co-operative Bank, the Stock Purchase Agreement, and the proposed purchasers, the purchase price, the closing date for the purchase and the other terms of sale as set forth in the foregoing documents. Upon conversion CapeBank will be fully authorized to transact the business of a state-chartered co-operative bank in stock form. This approval is conditioned upon the completion of the initial sale of $5.6 million of the stock to be issued in the conversion within the time period required by 209 CMR 33.19(3). All other provisions of 209 CMR 33.00, Subpart B are incorporated by reference in this approval including the requirement in 209 CMR 33.19(5) that no amendment to the Plan of Supervisory Conversion may be made without approval of the Commissioner.
| January 8, 1996 Date | Thomas J. Curry Commissioner of Banks |