ACB Holds Annual Mutual Community Bank Conference In Washington, D.C.
Over 120 executives from mutual banks and mutual holding companies met in Washington on March 13^th for America’s Community Bankers’ annual Mutual Community Bank Conference. Mark your calendars for next year’s Mutual Community Bank Conference – Wednesday, March 7, 2007. 

Attendees heard from mutual institution colleagues and guest speakers about cutting edge issues facing the industry. Topics included innovative strategies, succession planning and managing short-term profitability with long-term growth. Top regulators from the OTS and FDIC also addressed the conference on critical corporate governance issues.   

Peer Group Discussions on Marketing Mutuality, Enhancing Fee Income And Growth Strategies 

• Participants in the Marketing Mutuality session addressed the benefits of local ownership and the longstanding commitment of mutual institutions in their communities as effective marketing strategies. These institutions distinguish themselves from large stock institutions that have formed as a result of multiple acquisitions. Service levels, profits going back into the community, local volunteerism and customer appreciation are all a focus of mutual institutions’ marketing efforts. 
   
• The Growth Strategies session offered practical tips about primary and niche businesses as diverse as boat and recreational vehicle lending, commercial banking, and the standard mortgage business. Several bankers described their expansion into commercial banking. Cash letters and equipment, land, and working capital loans were also mentioned as potentially important components of the banks’ commercial strategies. Participants discussed home equity lending as a growth opportunity now that home purchase transactions are slowing, while others reported success in attracting municipal deposits, which tend to be very stable.
   
• The peer group on Enhancing Fee Income discussed their experiences with several revenue-generating products. The group also examined the trend in which products that once earned fees are now offered free – such as checking accounts and on-line banking. One participant reported success in offering overdraft protection services. Some banks do not charge if the overdraft is below a minimal threshold. Others have had success providing additional financial investments, trust services, and remittance products to growing immigrant populations. There was general agreement that success of any fee-generating product depends on a bank staff that is knowledgeable and proactive in its promotion.

Challenges In Managing A Mutual Bank. Dr. Jim Clarke, a nationally known expert on banking, discussed common reasons for mutual ownership failure and how to test a mutual ownership business model for future success. Clarke also explored reasons why mutual stock conversions struggle for success in the long run. He observed that some institutions have difficulty in leveraging new capital and adapting the board and management to a public culture. The audience of mutual bankers was asked to look at their own business model and assess whether it is directed toward success. Clarke said that many mutual banks should rethink their business models by carefully blending wholesale with retail strategies and asset liability management structures with off balance sheet revenues and expenditures. He said that combining low-return wholesale products with high-cost retail platforms is an invitation to failure.

Succession Planning. Conference attendees received valuable information from colleagues on how to manage a comprehensive approach to succession planning for corporators, boards and key officer positions at mutual institutions. Presenters explained how they identify business and community leaders as potential board members. The importance of board succession, planning, education, and committee membership were key topics of discussion. Officer succession is also critical – and identifying top management through performance evaluations, observations and regular meetings are ways that some institutions plan for officer succession. The presenters also made training management successors a high priority.

Retaining Key Employees. Shirley Broder, an expert in employment issues, moderated a luncheon panel that highlighted the experiences of two mutual institutions, one larger and one smaller in asset size, in retaining and attracting key employees. The discussion focused on a broad array of topics, including development of employees, use of bonus incentives, attracting talent from banks that are acquired and identifying personalities that will align with the goals of the institution.

Innovative Mutual Organizations. Panelists described innovations involving structure and new product lines. Larger mutual banks may think about adopting some operating practices of public companies. For example, executives may be offered “phantom” stock plans. Some institutions may also want to provide the same types of disclosures a public company would be required to make.  Innovation may include looking at opportunities for a fit with the organization, such as insurance agency acquisitions. Some institutions have acquired businesses from institutions that have been acquired. Panelists discussed the benefits and the challenges of innovation, including expanded regulatory costs for new operations.

Corporate Governance. Scott Polakoff, the new Deputy Director of OTS, and Chris Spoth, regional director of the Division of Supervision and Consumer Protection for the FDIC, were panelists. Polakoff identified the OTS’ nine best practices for corporate governance: knowledgeable and skillful directors and officers; separation of personal and institutional interests; methods and practices for the management team; processes and standards for transparent and objective analysis; procedures for recommendations, backed up by analysis; clear delegations of authority; periodic business assessments; avoidance of all preferential treatment; and review across the organization. Spoth discussed the FDIC’s views on the guidance issued by the bank regulators on commercial real estate and nontraditional mortgage products.

Mutual Holding Company Issue Highlighted
The Mutual Community Bank Conference discussed a recent proposal by a minority shareholder group that was made to the office of Sen. Mike Crapo (R-Idaho). It would allow the transfer of the voting rights of the majority mutual interest to the minority public shareholders. It would enable them to appoint all the directors and management and force second step conversions. These shareholders have asked that language to this effect be inserted into the Senate’s version of the regulatory relief bill. At the Mutual Conference, OTS clearly stated its opposition to the proposal, citing recent congressional testimony by OTS Director John Reich and a recent OTS letter to Senator Crapo opposing the proposal. Conferees at ACB’s Government Affairs Conference also discussed the issue in general sessions and raised the importance of preserving mutual holding company rules at agency meetings with the OTS and FDIC. ACB and OTS are actively opposing the minority shareholder proposal, and its inclusion in Senator Crapo’s reg relief bill does not appear likely at this time.