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Mutual thrift defections from the Office of the Comptroller of the Currency should decline now that once-nervous bankers have gotten a chance to get familiar with the regulator.
July 1 -
Mutuals are evaluating proposed legislation that would create a new type of preferred stock and create a federal charter that allows for more commercial lending.
April 19
A large group of former mutual thrifts could soon go on the auction block.
The 2010 passage of the Dodd-Frank Act, which merged the Office of Thrift Supervision into the Office of the Comptroller of the Currency, prompted these thrifts to convert to stockholder institutions. By law, converted mutuals must wait at least three years before they can be sold. The probation period has ended for seven former mutuals this year, and will for another 10 before yearend.
Former mutuals can be attractive targets. Most are well-capitalized and some operate in markets that potential acquirers covet like Dallas and Philadelphia.
The $2.4 billion-asset United Financial Bancorp (UBNK), in West Springfield, Mass., is always on the lookout for ex-mutuals that could be acquisition targets, says Richard Collins, president and chief executive. United Financial acquired New England Bancshares in Enfield, Conn., in November.
"I kind of tend to know which ones are not quite at three years," Collins says. "I have that in the back of my mind."
Some former mutuals have so much capital that buyers would have to discount their valuations, says Richard Schaberg, a lawyer at Hogan Lovells. (Idle cash depresses return on equity.) The strongest selling point for most ex-mutuals is that they have "a good solid loan portfolio and a solid franchise," Schaberg says.
Some acquirers have announced deals as soon as legally allowed. First Place Financial, a Warren, Ohio, holding company operating under bankruptcy protection, announced April 2, 2008, that it had agreed to acquire OC Financial in Dublin, Ohio. OC had converted out of the mutual format exactly three years and one day before.
One of the demutualized banks that has passed the mark this year is Fox Chase Bancorp (FXCB), a $1.1 billion-asset thrift holding company in the Philadelphia suburb of Hatboro, Pa. SP Bancorp, the holding company for the $295 million-asset Share Plus Federal Bank in the Dallas suburb of Plano, Texas, is among the converted banks that will become eligible for sale before yearend.
Many of the thrifts that converted in 2010 feared the OCC would not understand the needs of mutual banks. Some demutualized with an eye toward selling themselves down the road. Others had more immediate financial concerns.
"I don't know that every mutual that converted in 2010 did so because they wanted to sell," says John Bowman, a former acting director of the OTS and now a lawyer at Venable. "They were looking for ways to raise capital."
Mutual thrifts are legally constrained from raising capital, except through retained earnings. That drives many mutuals to convert, including the $79 million-asset United-American Savings Bank (UASB) in Pittsburgh. United-American considered finding a buyer, but decided instead to convert to stock format and raise additional capital before seeking a sale.
"In our case, we were severely undercapitalized and it was either merge with another institution at that point, or raise capital," says Tom Smith, president and chief executive of United-American, which converted Aug. 6, 2010.
Smith would not say whether United-American will try to find a buyer when it passes its third anniversary on Aug. 6, but he would not rule out a sale.
"We decided to try to survive and retain our independence," Smith says of the bank's 2010 conversion. "We're looking to do whatever our shareholders need us to do."
Of the 561 mutual thrifts in the U.S., as of March 31, many would benefit from a conversion because of the increased flexibility to raise capital, says Frank Schiraldi, an analyst at Sandler O'Neill & Partners.
As for target valuations, many former mutuals would look expensive to potential buyers, if assessed by their price-to-earnings ratios, Schiraldi says.
"Where they might look inexpensive is their price-to-tangible book value," Schiraldi says. "They would be attractive to a certain institutions looking to fill out their footprint."
It's difficult for a former mutual thrift that has completed a conversion to stock format to stay independent, says Doug Faucette, a lawyer at Locke Lord. Activist investors often try to force these institutions to sell out, whether they want to or not, he says.
Hence, a fear for managers is that if they demutualize, "the wolf pack is going to end up suing you and making your life miserable," Faucette says.
With the threat of activist investors lurking, some mutual thrifts have never considered any type of conversion, either a partial or a full one.
"We don't ever talk about it," says Mike Nolan, president and chief executive of the $371 million-asset Fifth District Savings Bank in New Orleans. "The best thing for us is to remain a mutual."
