Until it began negotiating to buy a Chicago-area thrift late last year, Indiana's Citizens Financial Services Inc. seemed content to remain mutually owned.

Then the target's board insisted that its shareholders be paid in stock rather than cash, and Citizens decided it was time to go public-and make history.

Munster-based Citizens raised $178 million in a public offering late last month, buying Flossmoor, Ill.-based SuburbFed Financial Corp. with a little more than one-third of proceeds. In doing so, Citizens became the first thrift to convert to a stock-owned institution and simultaneously buy another thrift.

"Every two years we would revisit the idea of converting, but the board always felt that we would not be able to use the proceeds properly," said James W. Prisby, president of $1.4 billion-asset Citizens. "This gave us an immediate use of the proceeds."

Other thrifts have taken notice.

Since Citizens announced its conversion and acquisition in January, Cohoes (N.Y.) Savings Bank and 1855 Bancorp, parent of New Bedford, Mass.- based Compass Bank for Savings, have unveiled similar plans.

Bankers and analysts attribute the rash of mutual conversions to the soaring stock market. Betting that bank and thrift stocks will continue to rise-and to defer capital gains taxes-most acquirees prefer stock to cash. That has made it difficult for mutuals, which must offer cash, to make deals.

Simultaneous acquisitions can help sell the idea of mutual-to-thrift conversions to reluctant boards.

"A lot of mutual managers are looking not just to convert, but for a good reason to convert," said John Bruno, senior vice president at Charles Webb & Co., a Columbus, Ohio, division of Keefe, Bruyette & Woods. He cited the creation of charitable foundations-which typically are funded with stock sale proceeds-as another way for thrifts to deploy capital.

Cohoes said this month that it will convert and purchase nearby SFS Bancorp with the stock raised in the public offering. Depending on Cohoes' trading price, the $563 million-asset thrift would pay between $35 million and $42 million for SFS and its 109-year-old subsidiary, Schenectady (N.Y.) Federal Savings Bank.

By yearend, Compass expects to complete its mutual-to-stock conversion and subsequent $125 million purchase of Sandwich (Mass.) Bancorp.

Still, one analyst stopped short of calling the sudden emergence of conversion/acquisition deals a trend. Kevin Timmons, of First Albany Corp., Albany, N.Y., said the key for thrifts is finding in-market deals-no small task in this era of frenzied consolidation.

"If you can find a $100 million thrift in your hometown, then this makes perfect sense," Mr. Timmons said. "But if the opportunity is to acquire a thrift that's 200 miles away in a rural market, then that would not make much sense."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.