Seacoast mutual bank sells 44% of itself in initial public offering

Dover-based Federal Savings to change its structure, name

Federal Savings Bank will not only change its name Wednesday to First Seacoast Bank, it will change its structure, turning into a hybrid – partly a mutual bank and partly a publicly held company, with its shares traded on the Nasdaq exchange, under the ticker symbol FSEA.

The Dover-based bank, one of the smallest in the state, will be offering a 44% stake at a starting price of $10 a share in an initial public offering, giving another 1% to a nonprofit foundation. Its customers – both depositors and borrowers – will retain control with 55 percent of the bank.

They will be owners in the sense that they can vote for the board of directors, but not like the shareholders of the rest of the company, who will be able to sell and buy shares. It was the customers that approved the idea on June 27.

“The customers will still control the destiny of the bank,” said James R. Brannen, FSB’s President and CEO.

Customers also get dibs to be stockholders as well, at that $10 initial share price, via subscription, while everybody else will get it at whatever price the market dictates starting Wednesday.

The bank’s employee stock ownership plan can purchase up to nearly 4% at of the shares at $10 and directors too plan to buy about $1 million in stock. In addition, some of the stock will be set aside in an equity incentive plan for company executives, like Brannen, augmenting his current compensation plan – revealed for the first time under the filings of a soon-to-be-public company – of $236,000 last year.

But stock awards to all executives would be limited to nearly 2 percent of the shares (worth about $1.1 million) and stock options to less than 5 percent (worth less than $800,000.)

Three-tier structure

Here’s how the hybrid plan works: Federal Savings Bank will break itself into about 6 million shares, renaming itself First Seacoast Bancorp Mutual Holding Company. First Seacoast Bankcorp – the mid-level entity – will get 3.35 million shares, and about 2.68 million shares will be sold to the public, including nearly 240,000 shares to the ESOP. The First Seacoast Community Foundation will get about 60,000 shares, replacing the existing foundation, though with more resources. Together, the customers and the shareholders will own First Seacoast Bank.

Despite this complicated three-tier structure, all of the First Seacoast entities will be controlled by the same board of directors and the same management.

The bank is doing this primarily to raise money – roughly $27 million – to keep up with the growth of the Seacoast and the ever-competitive banking market in the region, while still maintaining that mutual control.

The bank has about $395 million in assets, as of March 31, some $35 million more than in 2017.

“We have capital, and it is growing but it isn’t growing as fast as the community,” Brannen said.

The name change was just a happy coincidence of timing, Brannen added. It had been in the works for several years, he said. The bank was originally chartered in 1890 as Dover Co-Operative Savings Fund and Loan Association, and many of the locals still thought of it as Dover Federal Savings even after it became Federal Savings Bank. It turned out that market studies show that consumers do want that regional connection, and First Seacoast Bank allows for some continuity, since the bank can keep the same initials, FSB.

“We wanted to be less generic,” Brannen said.

The bank hopes to change in other ways as well, according to its prospectus and other financial documents, by moving beyond its current focus on residential mortgages (which constitute 63 percent of its loan portfolio) to commercial real estate and other commercial loans, which now constitute about 32 percent.

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