Two small depositor-controlled banks are braving a bear market for bank stocks to pursue second-step conversions.
The $858 million-asset BV Financial in Baltimore, holding company for BayVanguard Bank, commenced a stock offering Monday aimed at selling as many as 15.2 million shares priced at $10 each. If the offering succeeds at the maximum level, BV would receive $149.3 million after paying fees and expenses.
Gouverneur Bancorp, meanwhile, announced Tuesday that it plans to pursue a second-step conversion. The $205 million-asset Gouverneur, which takes its name from the upstate New York village where it is headquartered, raised $4.8 million from its first-step conversion in March 1999.
BV Financial raised $11 million in its first-step conversion, which closed in January 2005.
While most depositor-owned mutual banks that convert to stock ownership do so in a single transaction, a smaller number, including BV and Gouverneur, have chosen to sell minority stakes to investors, vesting majority control in a depositor-owned mutual holding company. Second-step conversions result in full stock ownership.
Investors currently own about 14% of BV and 36% of Gouverneur.
In a prospectus filed Tuesday with the Securities and Exchange Commission, BV, which reported net income of $3.1 million for the quarter ending March 31, indicated it would use second-step-conversion proceeds for general corporate purposes, including potential acquisitions. The company has acquired four banks since its 2005 first-step conversion, most recently the $45.3 million-asset North Arundel Bank in Pasadena, Maryland, in January 2022.
Gouverneur, too, has been acquisitive, completing a deal for the $83 million-asset Citizens Bank of Cape Vincent in Cape Vincent, New York, in September. The company reported a $13,000 first-quarter loss.
Gouverneur stated Tuesday in a press release it anticipates receiving regulatory approval for a second-step conversion from the Federal Reserve and the New York State Department of Financial Services in the third quarter. After that, Gouverneur will publish a prospectus and other proxy materials detailing the plan. An independent appraisal will determine the number of shares to be sold.
Once common occurrences, second-step conversions have become relatively rare events, limited by the declining number of mutual banks and more recently by unfavorable market conditions. Only one second step took place in 2022, a conversion that raised more than $132 million for the $2.5 billion-asset Ponce Financial Group in New York. The only second step to close so far in 2023 involved the $548.5 million-asset First Seacoast Bancorp in Dover, New Hampshire. First Seacoast's Jan. 19 conversion resulted in net proceeds totaling $25.7 million.
First Seacoast had hoped to sell as many as 3.8 million shares, but the stock sale resulted in sale of 2.8 million, the minimum necessary to complete the transaction.
Both Ponce and Seacoast are trading substantially below their post-conversion starting points. More broadly, the Dow Jones U.S. Bank Index has declined 17% since the start of 2023. The KBW Nasdaq Bank Index is down 22.4% since the start of the year.
Gouverneur CEO Charles Van Vleet did not return a call seeking comment. BV co-CEO David Flair also did not return a call.
Gouverneur's second-step announcement came five weeks after former CEO Faye Waterman resigned. Gouverneur appointed Van Vleet, who served as CEO from 2010 until his retirement in May 2021, interim CEO while the company searches for Waterman's permanent replacement.
