ABA Banking Journal - November 2008 - (Page 38)

COVER STORY 100% residential mortgages. At present it’s 50/50 residential/commercial, says Connelly. Further, it grew from $275 million in assets ten years ago to $1 billion now, boosted in 2003 by the acquisition of Horizon Bank & Trust Co, a sevenyear-old commercial bank in nearby Braintree, Mass., with $126 million in assets. South Shore had invested in the bank in 1998. To acquire it, the mutual had to form a mutual holding company. It then delisted Horizon and took it private, merging it into the South Shore Savings Bank. Now that’s old South Shore Savings Bank is the product of a 1997 in-market merger between Weymouth Savings Bank, founded in 1833, and South Weymouth Savings Bank, which was founded in 1868. However, the bank’s market—the South Shore region—was already 200 years old by the time the first of them was formed! The area is steeped in history. Weymouth, for example, had the first Town Meeting in the New World and only recently switched to a city form of government. About 20 miles south of Weymouth is Plymouth, the oldest town in America (disputed by Virginians who claim Jamestown deserves that distinction). It is where Arthur and Carole Connelly now make their home. Plymouth’s biggest tourist attraction is Plymouth Rock—where the Pilgrims set foot in 1620 after first touching land at Provincetown on the tip of Cape Cod. Other big draws are the Mayflower II, a replica of the original ship, and the “Plimouth Plantation” Museum. Quincy, Mass., closer to Boston, was home to both John Adams and John A matter of mutual interest A rthur Connelly and John Boucher have toiled together for nearly four decades at South Shore Savings Bank, a mutual savings bank that Connelly sometimes refers to as a “little country bank.” The two men couldn’t be more different. Connelly, now chairman and CEO of the holding company, but CEO of the bank for 23 years, is the classic Mr. Outside. Boucher (pronounced Bu-shay), on the other hand, is Mr. Inside. “The kind of operational guy who has to make sure everything is done right and the i’s are dotted,” he says of himself. A mutual holding company, by contrast, can be a stock owned institution or not. South Shore Savings formed an MHC three years ago in order Arthur Connelly and John to acquire a commercial Boucher have worked together bank, but management for 35 years. and trustees elected to have it retain the mutual structure. They have the ability, if they choose, to raise capital by selling minority shares of the holding company. Freedom to take the long view Both Connelly and Boucher like working for a mutual because it frees them from an excessive short-term focus. “It removes a level of pressure if the stockholders don’t like something that’s happening in the bank that might be for the ultimate long-term benefit of the bank and the community,” says Connelly. Success for a mutual, as both executives make clear, is not measured in shareholder return but in stakeholder return— being able to help the community grow, provide jobs for employees, and be able to support nonprofit groups that contribute to a community’s well being. In that respect, Connelly acknowledges that a mutual institution would be similar to family-owned or closely-held community banks. “Mutuality isn’t for everybody,” says Connelly, “but it’s a viable and very vital business model.” While more mutuals may opt to convert to stock, he believes one promising avenue for growth is the conversion of credit unions to the mutual charter as has happened in several cases already. “It would be the next logical step for a large credit union that has grown beyond the scope of its original common bond,” he says. ABA had savings institution members prior to its merger with America’s Community Bankers last year, but it now represents 95% of the mutuals in the country, says Connelly. As the first ABA chairman from a mutual institution since Philip Benson of The Dime Savings Bank in 1938, Connelly will work to ensure that legislators and regulators understand the importance of charter choice—not only a mutual charter, but a savings institution charter, and state and federal charters, as well. Who owns a mutual? Despite their different personalities, the two men share a common passion. Not just community banking, but mutual community banking. They both believe in the value of this structure and look askance at mutuals that have converted to stock for no other reason than to enrich a relative handful of people. The first mutuals were founded by philanthropists to promote the virtues of thrift and self-reliance among the middle and poorer classes, and offer them the security to save their money. It’s a common misconception that a mutual’s depositors own the bank. They do not. The profits, net of operations, belong to depositors, and they do have the right, should the institution decide to convert to stock form, to buy shares at the initial public offering price. This fact has given rise to the so-called professional depositor—investors who open deposit accounts in mutuals for the sole purpose of profiting from a conversion. Who does own a mutual savings bank? In a sense it owns itself. “It’s a self-perpetuating organization that represents the legacy of the community activists that originally founded the bank,” Connelly says. These activists put up the original capital and were called corporators, a position that is handed down generation by generation. On an annual basis from among themselves the corporators elect a board of trustees, which holds the statutory responsibility for operating the bank, according to Connelly. The trustees in turn delegate that responsibility to an executive committee—call it a board of directors—to retain management and to approve the actions of management. It’s a bit more cumbersome than the traditional bank model, Connelly says, but it avoids the SEC reporting of a public company. South Shore is regulated by the state and the FDIC. 38 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com PHOTO BY BILL BRETT http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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