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Last of a dying breed, fraternal society's bank to sell $225M in deposits

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Last of a dying breed, fraternal society's bank to sell $225M in deposits

The last U.S. fraternal benefit society to directly engage in full-service banking is joining two other peers that previously exited or materially repurposed such businesses in recent years.

Modern Woodmen of America's Dec. 13 agreement to sell MWABank's reported $225 million in deposits to a subsidiary of Axos Financial Inc. signals the end to a banking presence with roots in the Gramm-Leach-Bliley Act-era that saw the convergence of insurance and financial services.

The core business of Rock Island, Ill.-based Modern Woodmen is the sale of traditional individual life insurance and annuities to a base of nearly 760,000 members. The society expanded its menu of products into nonproprietary mutual funds, equity securities and variable products in 2001 with the launch of broker/dealer subsidiary MWA Financial Services Inc. It applied the same year to launch the bank for the broad purpose of offering convenient and affordable banking products and services, including checking and savings accounts and mortgage loans, as part of an overall life financial plan to its membership base and the general public.

A number of prominent insurance companies joined Modern Woodmen-formed or -acquired banking businesses between 1998 and 2003, a list that includes the likes of Allstate Corp., American International Group Inc., MetLife Inc., Nationwide Mutual Insurance Co., Principal Financial Group Inc. and State Farm Mutual Automobile Insurance Co. So, too, did fraternal society Thrivent Financial for Lutherans, which established what was then known as Thrivent Financial Bank in 1998.

Fraternal society Everence Association Inc., which operated at the time as the Mennonite Mutual Aid Association, applied in 2000 for federal deposit insurance. Its subsidiary, first known as MMA Trust Co. and currently as Everence Trust Co., was formed for the purpose of providing trust services to the fraternal society's members. Polish National Alliance of the United States of North America, another fraternal society, established a banking business on a de novo basis in 1999, then later expanded its presence through a 2001 acquisition.

The internet-focused MWABank grew rapidly, with its deposit base rising to more than $100 million in 2006 from $7.3 million at year-end 2003. Its pace of expansion moderated thereafter; the bank's deposits peaked at calendar year-end in 2016 at $222.5 million. They totaled $219.6 million as of Sept. 30, 2018.

Regulation and legislation in the aftermath of the financial crisis led a number of insurers to reconsider their banking presence. A series of exits typically executed through voluntary termination of deposit insurance, outright sales, or divestitures of deposits have followed, including several transactions announced in 2018, highlighted by the sale of $2.4 billion of Nationwide Bank deposits to Axos and the divestiture of the parent of Mount Joy, Pa.-based Union Community Bank by Donegal Mutual Insurance Co. and Donegal Group Inc.

Thrivent in 2012 contributed $45 million in connection with its sponsorship of the newly chartered Thrivent Financial Credit Union, which, in turn acquired substantially all of Thrivent Financial Bank's assets and liabilities related to its retail banking operations. The bank was renamed Thrivent Trust Co. in connection with plans to limit its business to trust and fiduciary activities. The parent deregistered as a savings and loan holding company as a result of those transactions. A handful of other insurance companies executed similar strategies regarding their banking businesses.

Polish National Alliance, meanwhile, divested its banking business in September 2015 in connection with the bankruptcy proceedings of a subsidiary that served as PNA Bank's immediate parent. The sale unfolded over a period of several years in the aftermath of a regulatory directive for the bank, which primarily served Polish and Hispanic customers in Chicago and Niles, Ill., to write down its impaired and restructured loans and to completely write off its goodwill.

Everence Trust continues to operate as a federal savings bank engaged in trust, fiduciary and custody activities.