Charter Financial Corp. of West Point, Ga., has opted for a road less traveled after shareholders balked at its plan to convert to a fully public company.

Instead of completing a full conversion, the mutual holding company of CharterBank plans to take the unusual step of conducting an incremental offering, in which it will sell another minority stake and remain a mutual.

The $1.2 billion-asset company shifted gears after shareholders objected to a full conversion. They were worried that the timing was lousy because valuations have dipped — especially for banks in the Southeast, and in Georgia in particular — and a large influx of capital might have encouraged overexpansion.

"We got a little bit of pushback from existing investors, and we try to listen to them," Robert Johnson, Charter's chairman, president and chief executive, said in an interview. "Their question to us was: Why sell a bunch of stock when valuations are low? The other question was: What are you going to do with the money when you get it?"

Johnson described the original plan as a "once-in-a-hundred-year" buying opportunity, but he acknowledged the investors correctly pointed out that there was "some execution risk."

Charter, which has a small percentage of shares outstanding, decided it could maintain control and still raise more capital — an approach few other mutual holding companies have taken.

"This is pretty rare," said Mike Shafir, an analyst with Sterne Agee & Leach Inc.

Most notable among the reasons that so few have chosen this course is that a company must have a small enough number of shares outstanding that it would be possible to sell more and still remain under the ceiling of 50% publicly traded shares.

Another is that by the time a company is ready to raise more capital, it would have a growth plan in place for using it. Also, a mutual holding company cannot be sold to any company except another mutual for three years after it completes a conversion.

Given these facts it is unlikely there will be a surge of incremental conversions, analysts said. Others that have gone down this path include Northwest Bancorp. Inc. in Warren, Pa., which converted in 2009, and Alliance Bancorp. Inc. of Pennsylvania in Broomall.

Like many financial institutions raising capital, Charter plans to use the proceeds for growth. It specifically wants to acquire failed Georgia banks, Johnson said.

"Fortunately, we are in the zone of where our numbers are good and we can take advantage of opportunities," he said. "That is what this is about — boosting capital up and reloading so we can continue to be opportunistic."

In 2001 Charter sold 20% of its shares, and over time repurchased shares — leaving 14% of its shares publicly held. In December it said it would complete the public conversion, raising nearly $130 million. Raising the full amount of capital would have put the company under pressure to use the money soon, Johnson said.

"Because banking is a leveraged business, you have to put it to work or there is no sense in raising it in the first place," he said.

There likely will be plenty of opportunities to acquire in Georgia as the state has one of the toughest banking environments in the country. Georgia had five failures in 2008, 25 in 2009 and eight so far in 2010.

Yet with only $1.2 billion of assets, Charter would be allowed to acquire only so much before regulators would be concerned about its ability to digest its purchases. Typically, regulators are wary if a company attempts to acquire more than 50% of its existing deposit base.

Industry watchers said Charter's partial conversion plan makes sense for the company, yet the decision has its downsides — including regulatory risk.

Shafir said questions about the future of the Office of Thrift Supervision, which depends on how regulatory reform plays out, could create a problem for minority stakeholders. The OTS permits mutual holding companies to pay dividends to such shareholders, but the Federal Deposit Insurance Corp. discourages it.

Theodore Kovaleff, an analyst at Horowitz & Associates Inc. and a frequent investor in converted mutuals, said that, while the FDIC doesn't like the idea of a company paying dividends to minority stakeholders, he disagrees about the level of risk involved.

"This is something that has been done by a significant number of mutual holding companies, so the expectation on my part is there would be some kind of grandfathering of those," Kovaleff said. "There is always regulatory risk on just about everything these days, but I don't think it is that much of a risk here."

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