Bank of Cape Cod: Enters during challenging times
by Glenn RittBank of Cape Cod opened last fall in the midst of turmoil within its industry – from pinched profits to a tumbling housing market. Yet, in many ways, its timing may prove impeccable.
How so? In three words: inverted yield curve.
Banks borrow at the short-end of the yield curve – deposits and CDs – and lend at the long end – mortgages and business loans. When short-term rates are low relative to long-term rates, being a banker is easy since the yield curve guarantees profits. However, when the yield curve inverts, banks must pay more to borrow than they earn by lending.
That’s magnified for established banks with large inventories of long-term loans. But with a blank slate, Bank of Cape Cod has no such historical obligations. For the short-term at least, this has allowed it to market rates competitive with much larger institutions.
“As a new bank, this has been a great environment, interest-wise, to start,” said CEO Tim Telman. “We did not plan it that way; we were fortunate.”
Telman and his colleagues are benefiting as well from another problem facing established lending institutions on the Cape – the depressed housing market.
While residential mortgages represent significant business for these banks and credit unions, Bank of Cape Cod determined from its inception that it would deemphasize that business to concentrate on commercial lending and consumer accounts.
To help implement that strategy, the bank recruited Mary Cotoia from Citizens Bank as chief lending officer. She joined Telman; CFO Ron Reed, formerly of Cape Cod Five Cents Savings Bank; and Chief Operations Officer Mark Carron, who previously worked for Cape Cod Bank and Trust, as the new management team. Telman is a veteran of the Bank of New England, Bank of Boston, and Brown Brothers Harriman & Co.
With such local roots and experience, the bank raised sufficient capital quickly. “We picked up $10 million in deposits during our first 3 months,” reported Telman. This comes on top of $14 million the bank attracted in capital to open its doors last September.
“At year’s end, we had more than $8 million in committed credit; $6.8 million of that actually was in use,” noted Cotoia.
Telman said the bank will seek opportunities in residential lending, but will do so slowly given the depressed market. Its focus is on commercial borrowers, especially smaller businesses seeking a local relationship.
Carron, meanwhile, targets technology and the Internet to expand beyond limited geography. Every customer has received a debit card, which is automatically distributed with a new account. “We are a single branch. To go to businesses outside our area, they must have access to their balances and activities,” said Carron.
Added Telman: “When it comes to online banking, a small bank has the opportunity to be as good as any larger bank. We subscribe to many of the same services and providers.” Those services will include remote deposit capture, which allows businesses to scan checks directly to the bank and avoid physically delivering them at a branch.
While Bank of Cape Cod has had a favorable start in a tough market, it remains to be seen how such a relatively tiny institution can thrive over time, especially with competition intensifying across the peninsula. Looking ahead, here are some strategies Telman and his team hope will prove successful:
• The bank will open a second branch this fall in Osterville. Its business plan calls for a third branch by year three.
• It is staying away from certificates of deposit and emphasizing traditional savings accounts, which were paying 4.5 percent this winter – eight times higher than most local competitors. It believes customers are less inclined to move money out of savings accounts; but when CDs mature, they immediately shop for best rates.
• As part of its business plan, the bank envisions growing a wealth management capacity. “We don’t want to lose that person who has $200,000 and wants something other than a CD or savings account,” said Telman.
• By emphasizing commercial accounts, the bank is managing to attract a significant amount of non-interest deposits – checking accounts.
• The bank is working to convert commercial business customers to personal accounts, including residential mortgages.
That commercial business is coming in part from brand-new opportunities on the Cape. The Bank of Cape Cod’s seasoned lending team is comfortable with any loan size but has found its niche thus far in the $200,000 to 1,000,000 range, Cotoia explained.
A good deal of its commercial business also comes from customers leaving other banks.
“The number of mergers and downsizings has built up a level of frustration among bank customers,” said Cotoia. “People still want to transact business with their neighbors, with those who live right here and make decisions right here. We assumed that when we founded the bank; and it is proving so.”
Published in Cape Business May/June 2007
Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey. 
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