Why multiple community banks in one Southern city want to convert to stock-owned bank corporations

The news: Three New Orleans-based mutual (or depositor-owned) banks—Fidelity Bank, Fifth District Savings Bank, and Mutual Savings and Loan—are seeking to convert to stock-owned bank corporations.

• Their motives for these conversions include growing, raising capital, diversifying loan portfolios, and potentially acquiring other banks or branch offices, per New Orleans Metro News.

Why resort to conversions? Mutual banks often focus on serving the local community and may prioritize depositor interests over maximizing shareholder profits. Converting to stock-owned bank corporations changes who these banks are accountable to, as well as lifting some of their limitations.

• They could issue shares to investors, thereby raising additional capital for expanding lending operations and investing in new products and services.
• And it would make merging with other FIs easier. However, they’d have to wait three years before doing so.

This means customers may not notice the changes immediately.

The New Orleans factor: National banking expert James Royal noted it’s unusual to see many conversions simultaneously focused in one location. Usually, he sees five to seven conversions across the entire US per year, per New Orleans Metro News.

• Economic conditions in the city could be driving this change. According to Axios, New Orleans is seeing the fastest population drop in the US, at 4.3% over the last three years.
• By comparison, New York lost 2.5% of its population and Detroit lost over 3%, per World Population Review.
• Economics professor Jose Bautista told Axios that Louisiana hasn’t really recovered from the pandemic, and the frequency of natural disasters in the region has added to the challenge.

Key takeaways: We predicted an uptick in bank mergers, and these banks are laying the groundwork for such activity.

• However, these banks are taking a path that consists of a multi-step process requiring regulatory approval, per American Banker.
• And it’s not necessarily going to get easier after the conversion. Community banks that change ownership and expand risk losing touch with customers who value hometown-style service and personalization.