The leader of an Ohio mutual has a plan to keep mutual banks from becoming extinct.
Thomas Fraser believes in the cause so much that he recently gave up day-to-day oversight of First Federal Lakewood in Ohio.
Fraser, who will remain CEO of the $1.8 billion-asset mutual's holding company, will spend more time pursuing mergers with other depositor-owned institutions. At the same time, he is looking to create more ways for independent-minded mutuals to remain relevant.
To that end, Fraser is backing the creation of shared service organizations, similar to what exists within the credit union industry, to allow mutuals to pool resources and compete with larger banks. The effort could lead to ventures dedicated to sharing technology and working together to add loans and deposits, he said.
“There are great lessons to learn from credit unions and other banks, where they share services," Fraser said. The effort will focus on "ways to collaborate for both growth opportunities and efficiencies.”
The notion of community banks working together isn't new, though it has proved to be challenging getting smaller institutions to buy into the concept. Risk management is a notable concern, along with unease over the prospect of sharing customers and prospects with other banks.
Still, cooperation is "something that has been discussed by [banks] at all levels," said Bob Davis, an executive vice president for mortgage markets, financial management and public policy at the American Bankers Association. "It might be easier to achieve among mutuals that aren’t trying to wring every last dollar to produce the highest possible return on investment.”
Fraser is determined to make it work, fueled by a lifelong passion for his mutual bank.
The veteran banker, who opened his first account at First Federal Lakewood as a child, spearheaded the creation of First Mutual Holding in 2015 to give smaller depositor-owned institutions a partner to share costs and preserve their ownership structure and culture. Since then, the company has absorbed Belpre Savings Bank in Ohio and Doolin Security Savings Bank in West Virginia.
While in the early stages of planning, Fraser said mortgage originations are a natural starting point for shared services.
“Realistically for mutuals, we're experts in making home loans,” Fraser said. “We could work together aggregating our resources and originating [and selling] loans where each mutual could keep the servicing rights.”
While mortgage originations, particularly refinancing activity, can slow down in a rising rate environment, the value of servicing rights tend to increase as prepayment speeds decelerate.
Mutuals already collaborate informally, largely by sharing information, said Douglas Faucette, a lawyer at Locke Lord and Washington director of America's Mutual Banks. "To reduce operating costs, they may need to collaborate in a more formal way," Faucette added.
"When mutual bank leaders are together — at groups meeting with trade associations or meeting at industry outreach — that these concepts resonate,” said Fraser, who is the current chairman for America's Mutual Banks. “It’s a matter of organizing ourselves and taking a leadership position regarding the importance of preserving mutual banking for consumers and communities.”
A growing number of mutuals are considering cooperative initiatives.
A quarter of participants in the American Bankers Association's semi-annual Mutual Survey, released in April, said they were considering forming a mutual holding company with other institutions to reduce operating costs. More than half of the respondents said there was a 50-50 chance they would combine in some way with another mutual in the next five years, up from about a third from a year earlier.
Dollar Bank in Pittsburgh, the nation’s second-biggest mutual, announced plans in May to form a holding company that would, among other things, make it easier for the $8.3 billion-asset company to bring other mutuals under its umbrella.
A pair of mutuals in Maine created Main Community Bancorp last year, allowing them to merge and share back-office costs while preserving their charters and local identities.
Though First Mutual recently merged Doolin and Belpre into a single institution, First Mutual Bank, Fraser said he would prefer to preserve the independence of other mutuals it absorbs. He noted that Doolin and Belpre were in neighboring towns and each had about $50 million in assets.
“In an ideal world, we would prefer that each bank retain its own charter," Fraser said. "It’s important to retain charters, because it gives mutuality relevance and a sense of balance when it comes to the number of mutuals going forward.”
It's no surprise that Fraser decided to step forward, Faucette said.
Fraser "possesses a remarkable set of leadership talents," Faucette said. "He's young, creative, he has energy and the support of a fairly large mutual institution behind him."