About six years ago, Kennebec Savings Bank had planned to switch charters, a move that never worked out. Mark Johnston, Kennebec's president and chief executive, thinks the bank's latest plan for a new charter has a much better chance of sticking.
The $792 million-asset mutual thrift, in Augusta, Maine, plans to form a mutual holding company, creating a three-tier corporate structure. The move is designed to help Kennebec prepare for future capital requirements, as well as lay the groundwork for a possible expansion, Johnston says.
Things weren't as easy in 2008, when Kennebec earlier tried to switch charters. Kennebec had reached an agreement to merge with KV Federal Credit Union, also in Augusta, Maine. That combination would have required Kennebec to drop its state charter for a federal one. But KV's members voted against the merger and Kennebec dropped the charter switch.
Now, however, there is no reason for anyone to oppose Kennebec's plan to form an MHC, Johnston says. It will simply give Kennebec's management more flexibility, he says.
"We were founded in 1870 by an act of the Maine legislature," Johnston says. "We're still operating under that charter, which is nice from a historical point of view, but it's not exactly an up-to-date charter."
Kennebec has no immediate plans to raise capital, acquire other institutions, or form a subsidiary, such as an insurance agency. But an MHC would allow the thrift to pursue any of those options, Johnston says. It's also possible that regulators may one day require Kennebec to boost its capital levels, pursuant to Basel III capital requirements.
"It's a safety net, if you will," Johnston says, referring to the mutual holding company structure.
Kennebec also wants to preserve its status as mutual-owned and Johnston believes the three-tier corporate structure bank, bank holding company and mutual holding company will give it protection from activists who might try to force a public stock sale.
"Having an 1870s-charter made us vulnerable to that sort of thing," says Johnston, who plans to retire in a year.
After the MHC is formed, Kennebec will continue to be regulated by the Maine Bureau of Financial Institutions, as well as by the FDIC. Since the transaction will establish a savings-and-loan holding company, the Federal Reserve Bank will also regulate Kennebec.
The structure is confusing, not to mention expensive, Johnston says. He estimates Kennebec will spend between $100,000 and $200,000 on the conversion, not to mention a year's worth of time on the project. Johnston questioned why the process should be so costly and time-consuming.
"It shouldn't be this difficult," he says. "The [Federal Deposit Insurance Corp.] can't even approve this deal from their regional office in Boston. It has to go all the way to Washington for approval. Why? This isn't a big deal."
Kennebec expects the transaction to close by July 1, pending approval from the FDIC. Maine regulators and the Fed have both already approved the MHC formation.
Sandler O'Neill & Partners is financial advisor to Kennebec on the formation. Eaton Peabody in Brunswick, Maine, and Nutter McClennen & Fish in Boston are legal counsel to Kennebec.