Small Savings Credit Union Deal Worries Mutual Bank Defenders | Journal of Credit Unions



The case of a single-branch savings bank selling to Minnesota’s largest credit union prompted defenders of mutual banks to oppose fears it would be a bad omen for institutions owned by depositors.

At stake are the $ 72.5 million assets of Brainerd Savings & Loan in Minnesota, which agreed to be sold at Wings Financial Credit Union’s $ 7.2 billion assets in Minneapolis in January.

A growing number of mutuals are selling shares to investors and converting them into shares through second stage mutual holding company offers, or through full mutual conversions into shares. So far this year, 13 mutual institutions have announced or completed second stage or full conversion transactions. Another mutual has finalized a first step in the sale of a minority stake to investors.

In 2020, a total of four depositor-owned banks sold shares.

Since credit unions do not have the power to buy mutuals directly, Brainerd plans to liquidate, sell his assets to Wings, and then distribute the proceeds among his depositors-owners.

Commercial banking groups including the Independent Community Bankers of America, America’s Mutual Banks and the American Bankers Association have asked the Office of the Comptroller of the Currency, Brainerd’s main regulator, to end the deal by denying the request. savings to terminate its charter. .

“They get around the problem of mergers by dissolving [bank] and buy the assets, which is basically a merger, ”said Chris Cole, executive vice president and senior legal counsel at ICBA.

“We are very concerned that this will accelerate the decline of mutuality for banks,” Cole said. Mutual banks “already have enough challenges with the pandemic and their net interest margins. It doesn’t help them.

Bank groups have also complained that Brainerd and Wings have refused to disclose key details of the deal – including the price Wings is paying and any money Brainerd executives may receive – claiming that the unusual structure exempts them from complying with merger disclosure rules.

“The critical elements of who gets what and how it’s going to be done are basically hidden from the public,” said Douglas Faucette, Locke Lord’s Washington partner.

“It is essential that the OCC, if it decides to approve this, publicize the reasons,” said Faucette, director of America’s Mutual Banks. “You have a comprehensive regime that subjects almost everything that involves the governance of a mutual fund to strict regulatory control. … But damn it, you can [purchase and assume] all the assets of a mutual and return the remainder to the members. It’s a rubber stamp. It was just routinely approved in the field.

“It’s really unusual to dissolve a mutual to do this kind of transaction,” Cole said.

The ICBA and US mutual banks submitted a joint comment letter to the OCC criticizing the Wings-Brainerd deal earlier this month. American Bankers Association President and CEO Rob Nichols submitted his own comment letter on April 20.

According to Nichols, smoothing the way for the voluntary liquidation of a healthy mutual bank would encourage depositors and management to liquidate institutions to release that value, to the detriment of banking services in institutional communities.

“It is not in the public interest to see institutions disappear to distribute the benefits accrued from years of sound and profitable operations,” Nichols said in his letter.

Brainerd has struggled to break even in recent years. It reported first quarter net income of $ 7,000 after losing a combined $ 1 million from 2017 to 2020. The company’s most recent annual profit, totaling $ 95,000, was in 2016.

At the same time, Brainerd has remained well capitalized and reported virtually no lending issues in its first quarter appeal report with the Federal Deposit Insurance Corp.

Spokesmen for Brainerd and Wings had not responded to a request for comment by the deadline.

The proposed combination involving Brainerd and Wings “has profound political implications,” said Thomas Fraser, president and CEO of First Mutual Holding Co., with $ 2.4 billion in assets in Lakewood, Ohio. “It overturned what was established policy and procedure for the past 50 years.”

“It struck a raw nerve with almost every mutual banker I’ve spoken to,” Fraser said.

Fraser has established himself as one of the main advocates of mutuals. He created First Mutual in 2015 to bring depositor-owned banks together under one roof, allowing them to share administrative, compliance and technology costs. First Mutual acquired five affiliated banks, including First Federal Lakewood, Fraser Bank run from 2013 to 2018.

Despite his efforts to preserve mutuals, Fraser said he had no concerns about the increasing number of mutual conversions into shares.

“I think it’s up to each mutual bank to find the right path forward, but it has to be 100% compliant with legal policy and regulation,” Fraser said. “This should not be new, and the interests of the depositor must be protected and paramount throughout the process.”

Equity sales by mutual banks are expected to continue in the second half of 2021 and through 2022, said Kip Weissman, partner at Luse Gorman in Washington.

“There are definitely discussions going on,” Weissman said. “Mutual or stock market, if you have less than $ 50 billion in assets, you’re probably looking around and asking yourself: what can I do to make my bank more relevant? … Capital is a good place to start.


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