The sale of St. James Federal Savings and Loan in Minnesota, which some believe could deliver another blow to mutual banking, faces a critical test this weekend.

The $251 million-asset Wells Financial — not to be confused with the much larger bank with a similar name — has agreed to buy St. James in a deal that will require the seller to first convert from a mutual to a stock-owned bank. The $27 million-asset St. James' members will vote on those steps during a meeting Saturday.

If the vote goes Wells' way, the Minnesota company will pay $1,000 for all of St. James' stock, which will then be retired. Mutual-bank advocates fear this would send a troubling message to the market: Mutuals are under so much pressure they are willing to sell for next to nothing.

"This is an interesting transaction in that it may be the beginning of a trend for mutual banks," said Douglas Faucette, a Washington lawyer who also serves as counsel to America's Mutual Banks, a trade group. "It could be the beginning of a roll-up of small mutuals."

Talk in recent years has focused on the potential demise of mutuals, particularly as more institutions, including Kearny Financial in Fairfield, N.J., and MSB Financial in Millington, N.J. — have looked to shed their mutual holding company status by completing second-step conversions.

Some institutions, however, are taking a stand in defense of the model.

Depositors at Reading Co-operative in Reading, Mass., approved a plan in December to make it more difficult for the thrift to convert to a public stock company.

"Mutual banks just aren't being formed today," Julieann Thurlow, Reading's president and chief executive, said in an interview late last year. "Every time there's a conversion, there are less of us. We've taken the position that we want to slow that progression."

Timothy Peterson, St. James' chief executive, did not return calls seeking comment on the mutual's decision to convert and sell itself.

St. James said in a prospectus for this weekend's meeting that it opted to merge with Wells because of its higher operating costs and a growing regulatory burden. The mutual earned $32,000 in the first quarter and $96,000 last year.

Wells earned $514,000 in the first quarter, and $1.4 million in 2014. The company will have nearly $28 million in capital when it absorbs St. James, based on data from the Federal Deposit Insurance Corp.

Wells' stock typically trades between $24 and $29 a share, prompting Faucette to question whether the right to buy St. James' stock at a tiny discount amounted to much of a benefit for the seller's depositors.

"In this case the right to buy stock, which constitutes a minority interest in an entirely different entity at fair market value, does not seem to be equivalent to subscription rights in a standard conversion where the mutual entity survives," Faucette said.

James Moll, who was recently named Wells' permanent chief executive, did not return calls for comment.

Wells, for its part, continues to make preparations for the future. After searching for nearly five months, it tapped Moll succeed Lonnie Trasamar, who resigned suddenly in January. Moll, who had been the company's chief financial officer, had been filling in as interim president and CEO.

Moll was already president and CEO of Wells' bank. He's expected to receive an appointment to run the holding company at the company's next board meeting. Moll is set to receive a three-year contract with a starting annual base salary of $175,000. He will remain CFO until a replacement is named.

Wells has also completed the subscription phase of a stock offering intended to help finance the transaction, during which time only St. James' depositors were allowed to buy shares.

Wells, which needs to sell at least 71,455 shares at $27.36 each to proceed with the deal, has now opened the offering up to the general public. Efforts to confirm how close Wells is to meeting that goal were unsuccessful. The offering is set to close on July 30.

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