After 50 years, a new mutual bank will launch

Organizers of what would be the nation’s first de novo mutual bank in half a century say they’re nearly ready to open their doors. 

Walden Mutual in Concord, New Hampshire, has received conditional approval from the Federal Deposit Insurance Corp. and a conditional charter from New Hampshire’s Banking Department. The final big hurdle is raising a minimum $20 million of capital, CEO Charley Cummings said in an interview. 

“Our hope is to open in late summer,” Cummings said. “We are working to do final implementation on all our technology systems, bring the rest of the capital into escrow and get final approval from the FDIC.”

Mutual banks date to 1816, when the first savings societies were established in Boston and Philadelphia. As the nineteenth century progressed, mutuals — which are owned and governed by depositors instead of investors — emerged as popular vehicles to help immigrants and working-class individuals save money and earn interest. At their zenith, in the first decade of the twentieth century, there were more than 630 mutuals in operation. That number has been in steady decline for decades as scores of mutual banks have converted to stock ownership. Only a handful have been added and these were converted from credit unions.

The last de novo mutual, Volunteer Federal Savings Bank, was launched in Madisonville, Tennessee, in 1973. Given that nearly 50-year interval, winning regulatory approval from regulators who had never processed a de novo application in their careers proved no easy task. 

“The crux of this was defining the type of capital that you could do this with,” Cummings said. That was the single largest challenge, but we seemed to have crossed that Rubicon.”

When it opens this year, Walden Mutual Bank will be the first de novo mutual bank to launch in nearly 50 years.

Walden’s fundraising push is well underway. Cummings said Walden has reached about three-fourths of the $20 million minimum target. It has received backing from several existing mutual banks eager to support the newest entrant into the sector as well as “several hundred” local supporters, many of them pledging the $5,000 minimum contribution. 

In many cases, “these are folks that are on our wait list to become depositors,” Cummings said. “So that also speaks to their desires to align deposits with real social and environmental impact.” 

Walden would welcome additional support from banks, including other mutuals, he said. 

“We seem to be pretty close from a commitment perspective, but would like folks from other mutual banks or other industry folks out there to give a call if they’re interested in participating,” Cummings said.  

An old recipe for banking

Cummings, who founded the Walden Local Meat Co. in 2013, conceived Walden Mutual as a branch-light, depositor-owned vehicle to support the sustainable food industry in New England and New York. 

Ultimately, to raise capital, Walden Mutual used special deposits that are subordinate to all general deposits and to all other debts, claims and obligations of the banks. They cannot be retired if their withdrawal would leave the bank with less than the minimum level of capital required by the Banking Department. 

While mutual banks are commonplace throughout New England — including New Hampshire, where more than half of the 17 banks headquartered the state are depositor owned — state officials took their time reviewing Walden Mutual’s application.

New Hampshire has seen two traditional banks open in the past decade: the $702 million-asset Primary Bank in in Bedford in 2015 and the $147 million-asset Millyard Bank in Nashua in 2019. But those were stock-owned institutions, whose familiar mode of organization posed no challenges for regulators.

Walden was different. New Hampshire hadn’t chartered a mutual bank since 1907, so Walden’s application took more time to approve, Bank Commissioner Emelia Galdieri said. 

“Because there was the wrinkle of the special deposits, that did merit some additional review,” Galdieri said in an interview. “We did want to make sure we understood that component. … I think it was an interesting challenge. Certainly, we didn’t have anyone on staff who was familiar with forming a mutual bank.”

Todd Wells, the Banking Department’s chief bank examiner, said examiners from regions where mutual banks are less common have had virtually no experience with depositor-owned banks. 

“Quite often, we’re going to [training] in the Washington, D.C., area, interacting with students and learners from all over the country,” Wells said. “Many of our counterparts had really never heard of the concept of mutual savings banks. It remains very centric to New England and the Northeast.”

According to an FDIC spokesman, action on Walden Mutual’s application is still pending. Cummings said he is optimistic about a positive resolution. “To my knowledge, there are no remaining substantive issues there,” he said. 

Setting an example

The hope now is that Walden’s progress will encourage additional groups interested in chartering depositor-owned mutual banks. “If we’ve paved the way for others to follow, that would be exciting,” Cummings said. 

Douglas Faucette, a partner at Locke Lord in Washington and a longtime spokesman for the Americas Mutual Banks trade group, applauded Walden’s success with special deposits, noting the similarity to the mutual capital certificates that Americas Mutual Banks has advocated.

Mutual Capital Certificates provided for payouts to investors, but only if the issuing institution was able to meet its capital requirements. 

“With mutuals, this is how you finance things,” Faucette said in an interview. “If you finance it, you’re going to have to use some special approaches.”

Cummings credited Walden’s regulators, “particularly here in the State of New Hampshire for ultimately embracing” the company’s vision, as well as its capital framework.  “Right from the beginning, they were really supportive and enthusiastic about the project,” Cummings said. 

Despite the heightened regulatory scrutiny Walden received, mutuals have a strong record from a safety-and-soundness perspective, Cummings said. 

“This type of institution is long-proven,” he said. “We’re not proposing a crypto trading platform that’s getting a banking charter, or something like that. … In my view,” depositor ownership “is a structure that sort of matches the moment, in that it was really designed to deliver stakeholder value.”

Indeed, Walden’s mutual structure may actually smooth its path to stability and profitability, since the absence of shareholders could make it easier for management to focus on long-term benefits. 

“What will ensure success is the way it’s managed and the way it markets its products in the community,” Faucette said. “Arguably because it is not owned by stockholders looking to flip it or get a certain rate of return, the bank doesn’t have to set aside so much of its earnings for that. It’s like the old Hebrew National commercial, we answer to a higher authority — in this case the community.”

Walden has also worked to set itself up for success by using a portion of its seed capital to close several business loans to prospective bank clients. 

“We wanted to be in a position to open our doors and have a pipeline of loans ready to close,” Cummings said. “That’s a very difficult thing to manage. A lot of transactions are time sensitive. Not every borrower is going to operate on our charter timeline.”

Walden plans to move the loans onto its balance sheet after opening, Cummings added. 

Between 1995 and 2013, nearly 40 credit unions converted to mutual savings banks. Those were existing institutions with large books of business that they brought with them. HarborOne Bancorp in Brockton, Massachusetts, the most recent convert, had assets of $1.9 billion when it converted from HarborOne Credit Union on July 1, 2013. HarborOne has since converted to stock ownership. 

Walden will be brand new. Cummings said he and his colleagues are looking forward to putting the chartering process behind them and getting down to banking. In the meantime, the Walden team is anticipating meeting its final regulatory obligations and opening its doors. 

“It can’t come soon enough,” Cumming said. “As much as we love paperwork and the bureaucracy of it, we’re really eager to get into business. That’s the fun part.”

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