Mutual thrifts are converting like there's no tomorrow.

Despite fears of being weighed down by excess capital, and though investors in recent months have shied away from initial public offerings for conversions, the stock market's siren song seems to be luring more mutuals.

The pace of conversion IPOs sagged in the first quarter, when only 11 were made. But 12 mutuals converted in the first four days of this month, including a record nine in one day, April 1, according to SNL Securities.

The high number so far this month - and the 32 approved applications in the hopper - presage a "much more active second quarter," SNL said.

About 100 mutuals have converted in each of the past three years, and this year seems headed for a similar total. At that rate, the 600 or so left will be gone before 2002. "Few believe there is a long-term future for mutuals," said William M. Moore Jr., managing director of Trident Financial Corp. of Raleigh, N.C., which is managing 20 mutual conversions at the moment, its highest ever at one time. "It's clear to everybody that it's a question of when, not whether."

When appears to be now. As for why, officials of the recently converted thrifts said they were prompted by the uncertainty over the future of the thrift industry - specifically, the talk in Washington about merging the bank and thrift charters - as well as a generally strong market.

"This is something we had been looking at for a three- to five-year period, but we finally felt that the unpredictability of policy in Washington was enough to move now," said John M. Kish, chief executive of GA Financial of Whitehall, Pa., which issued stock on March 26.

The snowball effect has taken hold of the industry, mutual experts said. With so many converting, those that remain are afraid of being left behind.

"What's driving them to convert is a loss of critical mass in the mutual industry," said Ben A. Plotkin, executive vice president at Ryan, Beck & Co. in West Orange, N.J. "Since so many have departed, they feel exposed from a political-regulatory standpoint. Also, consolidation is the name of the game today, and to be a part of that you have to be in stock form, one way or another."

Finally, to be competitive in attracting quality personnel, thrifts need to be able to offer stock-based compensation plans, which most executives expect these days, he said.

"Having a stock option plan is a big advantage in attracting talent," said G. Thomas Bowers, president of Savings Bank of Finger Lakes, New York, a year-old stock thrift that is putting an executive stock option plan on the ballot at its annual meeting next week.

Oddly enough, the conversion craze is occurring despite anemic interest in the stock of the newly converted.

Though thrifts that converted a year or so ago often saw a 30% to 40% "pop" in their share price during the first days after going public, those in the first quarter experienced only a 10.9% jump on average, according to SNL Securities. Last year's average was 16.2%.

Some share prices even dropped.

For example, the stock of at least three of those that converted on April 1 fell in the ensuing days. First Bergen Bancorp of Wood-Ridge, N.J., dropped to $9.63; WHG Bancshares of Lutherville, Md., to about $8; and Jacksonville Bancorp of Jacksonville, Tex., to $9.37. All opened at $10.

That's in part a function of supply exceeding demand. Many institutional investors used to put money into every thrift that converted, but now they've become more picky, analysts said. The other explanation is that appraisers, at the request of regulators, are pricing thrifts higher than before, as part of a regulatory effort to bring the big price pops into line with share price jumps after IPOs in other industries. They hope to hold the pops to around 15%.

In addition to lethargic stock activity, mutuals considering a conversion also face the daunting prospect of becoming overcapitalized - often with capital ratios as high as 35%, more than three times the industry norm.

That kind of capital invariably leads to low return on equity ratios, which in turn can spark shareholder unrest and attract unwelcomed suitors. It can also hurt a recently converted thrift's chances of finding a buyer.

Home Financial Corp. of Hollywood, Fla., for example, put a "for sale" sign out last fall, one year after its conversion, as required by regulators. Though well run and in a highly affluent market, the $1.2 billion-asset institution has had no takers as yet. Its problem: a 26% capital ratio.

Ryan Beck and other deal managers stress the importance of having a business plan for the deployment of excess capital, which can include stock repurchases, dividends, or expansion through branch or bank acquisitions.

Dime Savings Bank of Williamsburgh, N.Y., recently took the unusual route of converting and buying another bank simultaneously. The acquisition, done in cash, soaked up the excess capital from the conversion, keeping Dime's capital ratio at a respectable 11%. It would've boomed to an unwieldly 27% under a straight conversion.

Jonathan D. Epstein and Terence O'Hara contributed to this article.

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