While a recent spate of bank IPOs may have raised a few eyebrows, the commonwealth is also home to plenty of mutual banks that say they have no designs on ever going public.

Massachusetts has the highest concentration of mutual banks in the United States, with 52 cooperative banks and 60 savings banks making up close to 70 percent of all banks chartered here.

It’s also home to the largest and oldest mutual bank in the country. The $8 billion Eastern Bank has been mutual for nearly 200 years – and it plans to stay that way.

Of course, Eastern and others have more than just altruistic reasons for staying mutual. President and COO Bob Rivers said the mutual charter gives Eastern a few business advantages, too. For example, the bank can offer its employees a more attractive defined benefits plan, and it can donate 10 percent of its yearly net income to charity. And without shareholders to placate, mutual banks were able to take the long view during the recession and not tighten up credit.

“When the stock banks and larger banks were taking their hits in 2007, I could look up and down Main Street in this town and point to businesses that are still going because we kept lending,” said Julieann Thurlow, president and CEO at Reading Co-operative Bank.

But for all the advantages of remaining mutual, five Massachusetts-chartered banks have already filed registration documents with the Security and Exchange Commission (SEC) to go public this year. While it’s a higher than average figure, some analysts say they might expect to see more, given the Bay State’s concentration of mutuals.

Mutuals Going Public

A mutual bank could have myriad reasons for considering a conversion, the most obvious of which is the sudden infusion of extra capital. Proponents say that can help little banks pinched by tight margins and regulatory burden to grow their franchises and invest in new technologies.

Michael J. Jones knows that feeling. In 2007, Jones was president of Ipswich Co-operative, and the bank was hurting for capital. It merged with the Institution for Savings in Newburyport, of which Jones is now president and CEO.

Since that merger, the combined entity has more than doubled in size, from $800 million immediately after the deal to $1.7 billion today.

“We could have, at that point, done numerous things, but we chose to actually say, we believe in mutuality, the Institution for Savings believes in mutuality, and together, we can make a go of it without raising capital and being shareholder-owned,” he said. “Some of these banks that are out there have the same opportunity.”

In documents filed with the SEC, Pilgrim Bank, Melrose Co-operative and Blue Hills said, by varying turns, that they may use the proceeds raised in their stock offerings to expand loan portfolios, build out branch networks and invest in new technologies.

Jones was skeptical.

“What’s really tough is when you come from a bank with 20-some-odd employees and then you build this huge base of capital through a public offering; you’ve got to figure out how you’re going to put that to work and make money doing it,” he said. “It’s hard enough for banks our size to generate loans and assets with any type of yield to them and we already have the infrastructure in place.”

Then, there’s the tendency of some newly converted banks to buy back stock after going public.

“That’s usually a good sign that they’re planning on selling at the three-year mark,” Thurlow said. “That means they weren’t able to achieve the strategic plan they set forth when they proposed the conversion … The buyback takes it right back from the community and centralizes it into a few key players.”

Mutual By Law

A few mutual banks are so committed to their mutual status, they’ve written it into their bylaws. The Institution for Savings passed an article in its bylaws in July 2010 affirming its mutual status and prohibiting consideration of ever going public. The following spring, Salem Five approved a similar change to its bylaws, which also prohibits any director, officer, trustee or employee from profiting off a conversion proposal.

Reading Co-operative and Eastern do not have bylaws affirming their mutual status, but Thurlow and Rivers both told Banker & Tradesman they didn’t feel that was necessary. Thurlow said that Reading Co-op carefully vets its new directors and asks them to take a pledge to maintain the bank’s independence.

And Rivers said that when he joined Eastern Bank in 2006, then-Chairman and CEO Stanley J. Lukowski and current chairman and CEO Richard Holbrook made it very clear that Eastern would never go public.

“Stan Lukowski, who really built Eastern from three branches to what we are today, is someone who very easily could have taken Eastern public, and in some ways deservedly so, and very consciously didn’t,” Rivers said. “If Stan didn’t take that money, how could Rich? How could I? That’s a further reinforcement as to why we’re so passionate about being in this form.” 

Email: lalix@thewarrengroup.com