Everybody knows what local farms need: Land, buildings, seeds, animals, workers, people to buy what they grow.

But don’t forget money, because that’s often the hardest to get.

“The FDIC calls those types of businesses ‘informationally opaque.’ They don’t have financial statements, they’re not analytically savvy … so judging the risk profile is difficult,” said Charley Cummings, explaining why the region’s small and scattered agriculture sector has difficulty getting loans to start or enlarge their business.

Cummings is leading an effort to start Walden Mutual Bank, designed to serve the New York and New England agriculture market. He submitted the formal application – all 1,068 pages of it – to state and federal regulators on Tuesday, and the start-up staff is preparing to open an office at 66 N. Main St. in Concord. If all goes well, it will be taking deposits early next year.

Cummings hopes Walden Mutual will attract depositors for the same reason that people go to farmers’ markets or buy products from certain companies: Not just the quality of the product, but also for the effect that their money makes locally.

“We’re offering something that has a local, specific and tangible impact. We’re focused on sustainable impact in the region, which has a disproportional impact on the environmental, ecological, cultural vitality of our community,” he said.

“Where you invest your idle savings is often many times more impactful than where you buy your clothing. … I think that is very compelling from a brand perspective, especially in the context of growing interest in impact investment. It’s not something that exists in the market today.”

Farm experience counts

Cummings is not an obvious person to start a new bank. He worked in consulting and a clean-energy nonprofit, but is known for founding Walden Local in Massachusetts in 2013. The company, which took its name from Henry David Thoreau’s book and the philosophy behind it, delivers grass-fed beef and other locally raised products from scores of farms to tens of thousands of homes from New Jersey to Maine. He’s still on its board, although no longer the CEO.

He says this experience, seeing the difficulty supplying farms had to get financing, led to the idea of Walden Mutual.

“In building the supply chain of Walden Local, we saw a lot of businesses that I viewed as a solid, strong business with operating cash-flow and a lot of demand, that really struggled to find the right partner from a financing perspective. Many times it was us, in the form of prepayments on our buying commitments,” he said. “We were also scratching our own heads around who the right financing partner was.”

His argument to regulators and investors is that Walden Mutual’s board of directors and staff will include not just finance expertise but enough farming expertise to make judgments about what is, and isn’t, a good loan to make.

He pointed to Tim Joseph of Maple Hill Creamery, a board member. “He can go to a grass-fed dairy … and look at the herd, the production methods, the infrastructure and their milk contract, and have a very good understanding of what that business is and what the risk profile is.

“Every industry is different but food has a very special and credible claim to being unique. There’s perishable inventory; heavy regulatory burden; health and safety of the product and the employees – a combination of things make it different from an operational perspective,” he said.  “Knowledge of the industry allows us to have a differentiated credit understanding.”

Why a mutual bank?

New Hampshire has seen several bank start-ups in the past decade, but Walden Mutual will be unique because of the second word in its name: If approved, it will be the first mutual bank to start in the U.S. since 1973.

Mutual banks are similar in some ways to a credit union. “The very short story is: A mutual bank means the bank is ultimately owned by depositors” Cummings said.

Walden Mutual is taking this unusual route, he said, mostly because it fits in with the goal of attracting support from people who want to help local agriculture as well as having savings accounts and investments.

“That makes an amazing strategic alignment. You ask who do we work for, and it’s completely unambiguous: our depositors. In a normal corporate setting, that can be confusing,” he said. “This gives the impact model teeth, to say that ultimately there’s nobody else in the picture here.”

Member ownership also happens with credit unions but Cummings said being a bank has advantages, such as fewer limits on membership, but most notably access to FDIC insurance.

“That’s the benefit of insured deposits. If your goal is to lower the cost of credit and capital, lowering your cost of capital by using federally insured deposits is the way to do that,” he said.

Farm lending also comes from credit bureaus such as Farm Credit East. Cummings said that as a bank, Walden Mutual will be able to focus on more of the agricultural ecosystem.

“We want to lend further up the value chain … and their mandate ends at the farm gate. They can’t lend to a tomato-sauce producer if they’re not producing their own tomatoes, for example,” he said. However, he added that “Farm Credit is more of a partner than a competitor” since both have the goal of boosting the region’s agriculture.

However, trying to be the first new mutual bank in a generation has its drawbacks.

“This is the first mutual application that any of these regulators have seen in their careers, so they may have questions,” Cummings said. The biggest stumbling block will probably be convincing regulators that Walden Mutual meets standards for what is known as tier 1 capital, since it has neither equity, used by most start-up banks, nor the years of retained earnings that serve for existing mutual banks. 

Impact investing

Walden Mutual will take consumer deposits but only do commercial lending – no home mortgages. While it will have an office and ATM in Concord, its business will be largely digital. 

“We need to raise about $25 million to open the doors of the bank and will grow deposits from there,” Cummings said. He has got about $3.5 million in seed capital and will start soliciting the rest after the application is approved.

Individuals can invest as little as $5,000. Cummings hopes the bank’s structure and purpose will encourage some depositors to become investors.

He takes heart from the growth of what is known as impact investing, which targets not just monetary returns but also people’s values.

“This is an interesting era where a lot of people are forcing change upon public companies, making them consider things other than a single-minded focus on shareholder value. That’s why I view it as such a timely opportunity,” Cummings said.

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