Conversions and consolidation have gradually been decreasing the numbers of our nation's mutual banks for years. As a result, the Federal Reserve has proposed its first major update since 1993 to the rules governing the mutual holding companies and mutual banks it supervises.
The rules aim to reduce regulatory burdens, improve access to capital, ease dividend waiver requirements, and simplify conversions from mutual to stock ownership.
Supporters argue these changes will help mutual institutions remain competitive. As a staunch supporter of community banks, including mutuals, BauerFinancial hopes they are right.
JRN by Bauer 43:31
The “Modernization” of Mutual Banking
The Federal Reserve (Fed) has proposed new rules to modernize the regulatory framework that applies to the mutual holding companies (MHCs) it regulates. Mutual banks and Mutual Holding Companies (MHCs) are owned directly by the people who have a “banking” relationship with the institution, such as a deposit or a loan. Because of their ownership by their “members”, mutual banks are uniquely focused on those members and the communities they come from. Mutuals tend to prioritize long-term stability over near-term profits.
The proposed rule was published in the Federal Register on August 4, 2026 and has a 60-day comment period. The Fed assumed regulatory authority over these institutions from the now defunct Office of Thrift Supervision (OTS) in 2011 and the rules governing them have not been revisited since 1993. This proposal recognizes that mutuals are important to the safety and stability of the U.S. banking system by contributing to diversity within the system. The proposal is intended to reduce regulatory burden, increase the ability of mutuals to raise capital, eliminate certain dividend waiver requirements and make it easier for MHCs to convert to stock institutions.
Long-time readers of JRN know that BauerFinancial is a major advocate for community banks, including mutuals. In addition to serving the needs of their communities, mutual banks are owned directly by the people who have a “banking” relationship with the institution. Unlike commercial banks that prioritize shareholder profits, mutuals focus on serving their customers’ and their community’s needs.
In 1980, the majority of U.S. thrifts were mutuals. Deregulation in the 1980s changed that, prompting scores of mutual banks to convert to stock ownership. Today, regulatory burdens and difficulty raising capital have added to their decline.
You may recall two weeks ago we reported on Century Financial Services Corporation (CFSC), the holding company of 3½-Star Century Bank, Santa Fe, NM (28362) and the unexpected consequences that arose after it converted from a mutual to a stock form of ownership (JRN 43:29). That was an extreme case to be sure, but it does highlight the unforeseen risks that may arise in a mutual-to-stock conversion.
The following story involves a mutual bank that we began reporting on in 2015. We have been watching the progression ever since.
On June 29, 2015 (JRN 32:25) we wrote and article entitled, “A Quintessential Bank in a Quintessential Town” about a mutual savings bank with roots going back to 1871 that we called “another in a long line of mutual banks unable to keep up with the pressures of small interest margins and regulatory burdens that have piled up since the 2008 crisis.”
For 144 years, Merrimac Savings Bank, Merrimac, MA was where the town’s children opened their first bank accounts, fostering a relationship that often stayed with them for life. That all changed in 2015 when the $73 million asset Merrimac SB was acquired by North Shore Bank, a Co-op Bank, Peabody, MA. At the time we were pleased with the partnership: “…if it had to find an acquirer, it found a good partner. Established in 1888, North Shore, like Merrimac has a long history in Essex County, and a commitment to mutuality.” But that was then.
In 2016, ESB Bancorp, the mutual holding company for 4-Star bankESB, Easthampton, MA (90188), acquired Hometown Community Bancorp, the mutual holding company for North Shore Bank. ESB Bancorp MHC then immediately changed its name to Hometown Financial Group Mutual Holding Company. The banks themselves were not merged at that time.
However, since the Merrimac acquisition, North Shore Bank and its holding company, Hometown Financial Group, MHC have acquired several other banks including:
- 2019 $500 million asset Beverly Bank, Beverly, MA;
- 2022 $800 million asset Envision Bank and its Holding Company Randolph Bancorp Inc.;
- 2024 $1.347 billion asset Abington Bank, Abington, MA and its parent, 15 Beach MHC; and
- 2025 $359 million asset Colonial Federal Savings Bank, Quincy, MA.
These banks all became part of 5-Star TruNorthBank, Peabody, MA (26484), the lead bank of the Holding Company. By the end of 2025, Hometown Financial Group MHC had total consolidated assets of $6.8 billion and had three banks under its wings:
- The $3.3 billion 5-Star TruNorthBank, Peabody, MA (with 29 offices in MA & NH).
- 4-Star bankESB, Easthampton, MA (90188) which has $2 billion in assets and 11 offices in Western MA; and
- 4-Star bankHometown, Oxford, MA (26523) with assets of $1.6 billion (15 offices in MA & CT).
But it wasn’t done. In February of this year, North Shore Bank, a Co-operative Bank changed its name to TruNorth Bank. And now Hometown Financial is looking to convert from a mutual holding company to a stock holding company.
This change came about with a merger agreement made in early July with 5-Star Primary Bank, Bedford, NH (59086), a publicly traded commercial bank. As part of the conversion, Hometown MHC will cease to exist. Primary Bank’s four branch offices will become part of TruNorth Bank, which will be owned by a newly formed Maryland corporation, Hometown Financial Group, Inc.
All of this is subject to all standard approvals and is expected to be completed in the first quarter of 2027. At that time, if all goes as planned, TruNorth will also bring bankESB and bankHometown under the same name and certificate number. When complete, TruNorth is expected to have 59 branches across Massachusetts, Southern New Hampshire and parts of Connecticut.
There will be no mutuality left at this company that was previously “committed to mutuality”.
Many people are hailing the Fed’s proposed “modernization” as a saving grace for mutuals. Indeed, it will allow mutuals greater access to capital as well as offer dividend waiver relief. Those two sections will absolutely be a help to those still committed to mutuality.
Those less committed will find that mutual-to-stock conversion process has been streamlined. The Fed indicates that these changes are intended to help mutual banks grow and retain their mutuality. We hope they are right.