Lured by the chance to raise capital and worried about the future of the Office of Thrift Supervision, a wave of mutual holding companies have received approval to convert to full stock companies.
In a two-week span in May, regulators endorsed applications for eight companies to convert. Seven other conversions already have been completed this year.
This flurry of activity reverses a two-year slump in conversions.
Among the companies that received a blessing from the OTS last month were Oneida Financial Corp. in New York, Fox Chase Bancorp Inc. in Hatboro, Pa., and Colonial Bankshares in Vineland, N.J.
Jeffrey Hare, a partner at DLA Piper in Washington, said he expects the conversion trend to continue as banks weigh their options ahead of a proposed merger of the OTS and the Office of the Comptroller of the Currency.
"If they're thinking of planning one, then they're well advised to do them under existing standards, rather than hoping … that the existing standards would carry over to the new agency," he said. "You don't want to be first to press an agency on something that they're not familiar with, because unfamiliarity makes folks nervous."
Just five conversions were completed in 2009.
Six of the conversions completed so far this year were standard conversions, in which mutuals sold all of their stock at once. (Some mutual companies go public in steps, selling a minority of shares initially, and the rest in a secondary offering later.) Yet the majority of the conversions approved in May involve mutual holding companies taking the second step to fully convert.
Rounding out the list of companies that received approval last month were Oritani Financial Corp. in Washington, N.J., Jacksonville Bancorp Inc. in Illinois, Ideal Federal Savings Bank in Baltimore, FedFirst Financial Corp. in Monessen, Pa., and ViewPoint Financial Group in Plano, Texas.
Additionally, Peoples Federal Bancshares Inc. in Brighton, Mass., and Savings Bank of Maine, a thrift in Gardiner, received approval last month for standard conversions.
Analysts said a desire to raise capital also is behind the conversion trend. "A number of them are taking the action in order to have firepower to take over branches, or pursue FDIC-assisted transactions," said Theodore Kovaleff, an analyst with Horwitz & Associates. "It seems like now is the time that it is conducive for banks raising money."
Damon DelMonte, an analyst with KBW Inc.'s Keefe, Bruyette & Woods, said it's a natural period for the mutual-to-stock conversions because the capital markets have reopened, and stock valuations for mutual companies have improved. This makes second-step conversions more favorable to shareholders yet priced low enough to attract interest.
"I think people look at it as: You have an opportunity to buy a stock at a discount to where it would be after it became a fully public company," DelMonte said.
Mutual holding companies also have a unique ability to waive dividends paid to the holding company and redistribute them to shareholders instead. Yet it's unclear how the pending financial overhaul legislation might affect that policy, which is another reason that mutuals are considering conversions now, DelMonte said.
Although the approvals were expected, the quick succession of conversion approvals raised some eyebrows. OTS spokesman William Ruberry said the agency is keeping pace with an uptick in applications, and the timing of the announcements was coincidental.
"I think the reason why there are more being approved is because there are more applications being filed," he said.