Don’t tell Danvers Bancorp Inc. that demand for thrift stocks is weak these days.
In an otherwise sour market, the Massachusetts thrift company completed its mutual-to-stock conversion last week without having to go outside its depositor base to sell a single share. That its initial public offering was oversubscribed was surprising at a time when other thrift companies are struggling to sell a minimum number of shares — even after extending offerings to the general public. In recent weeks, several have had to postpone conversions because of lackluster demand.
“We are pleased to be the anomaly,” said Kevin T. Bottomley, the chairman, president, and chief executive officer of Danvers and its Danversbank.
He attributed the conversion’s success to the fact that Danvers, unlike many converting thrift companies, was not overcapitalized when it went public and could deploy the $171 million it raised quickly. It is common after a conversion for thrifts to have equity-to-assets ratios of 22% to 26%, but Mr. Bottomley said Danvers’ ratio is closer to 15%.
Damon DelMonte, an analyst at KBW Inc.’s Keefe, Bruyette & Woods Inc., said he is not surprised that Danvers’ offering went well. Danvers has “a good loan mix and a good deposit mix,” according to Mr. DelMonte, who does not follow the company but tracks conversions. Only 35% of its deposits are in certificates of deposit, and it has less exposure to residential real estate than other thrift companies, he said.
Mr. Bottomley said commercial and industrial loans make up the largest portion of Danvers’ portfolio at 37%, while residential mortgages make up 20%. The rest consists of construction and commercial real estate loans.
“Our business model is clearly already that of a commercial bank, as opposed to the traditional thrift that is driven by residential mortgages,” he said.
With the capital it raised, Danvers intends to add loans and branches, Mr. Bottomley said. About 90% of its revenue comes from interest income, and the plan is to buy wealth management or insurance firms to build noninterest income, he said. “Now that we have the resources, we can begin to seriously evaluate the opportunities out there.”
The company also recently added asset-based lending capability, “which is truly unique for a bank of our size in this market,” he said.
Theodore Kovaleff, an analyst at Sky Capital LLC who follows thrift conversions, said he subscribed to the Danvers stock offering, because he thinks company has good growth prospects in some of the Boston area’s wealthier suburbs.
Still, the company could not escape the unfavorable trends for thrift stocks. On their first day of trading Thursday, Danvers’ shares fell 2.6%, to $9.74. They were trading at $9.89 Monday afternoon.
The disappointing debuts of Danvers and other thrift stocks in recent quarters are a sharp contrast to the legendary first-day pops that helped make mutual-to-stock conversions a hot investment for many years.
A price slide is particularly unusual for a thrift company like Danvers that sells all of its stock at once. Mr. Bottomley said the shares sold at 82.1% of the company’s tangible book.
Mr. Kovaleff said the fact that Danvers’ offering closed at the top end of the valuation range, or “supermax,” had an impact on the market debut. He believes regulators should have lowered the valuation because of the poor market conditions for bank and thrift stocks. “It makes life very difficult for an institution such as Danvers to have any positive movement in the market after it becomes public,” he said.
