Only three mutual thrifts have succeeded in going public so far this year, but the conversion market is starting to pick up, with two large deals on the way.

Both the $7 billion-asset Northwest Bancorp Inc. in Warren, Pa., and the $1.1 billion-asset OmniAmerican Bank in Fort Worth have announced plans to sell stock.

William J. Wagner, Northwest's president and chief executive, said in an interview that his company weighed whether to come to market for the past several months and finally decided to act now, because it believes the cash infusion can be used to fuel its growth.

"There will be an awful lot of acquisition opportunities over the next couple of years," Wagner said. "It made sense for us to have the additional capital to take advantage of those types of situations."

The market has been choppy for mutual conversions, just as it has been for bank and thrift stocks in general. At least four thrifts have been forced to call off their deals over the past year, after failing to generate enough investor interest.

But analysts say conditions are improving. They point to the strong performance of a recent offering from the $1.2 billion-asset Territorial Bancorp Inc. in Honolulu as evidence, and say it could inspire others to come to market, particularly since, like Northwest, they might to be opportunistic about growth.

And while it might seem counterintuitive, low values for bank and thrift stocks actually make it a good time for mutuals to do an initial public offering, because the amount of money they raise can be more digestible.

"Sometimes raising too much capital isn't a good thing," said Damon Delmonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "It is good to have ample capital for growth needs, but if you get saddled with too much capital it isn't going to be good for you in the long run."

Besides Territorial, two others have converted this year — Hibernia Homestead Bancorp Inc. in New Orleans and St. Joseph Bancorp Inc. in St. Joseph, Mo. — and all were full conversions, in which they sold all of their stock at once, according to data provided by Sterne, Agee & Leach Inc.

By this time last year there had been seven conversion offerings, including some first and second steps. (Some mutuals go public in steps, selling a minority of the shares initially, then the rest in a secondary offering years later.)

Second steps face the toughest challenge when stock values are low as they are now, said Eric Luse, a partner in the law firm Luse Gorman Pomerenk & Schick PC.

Investors are looking for an "IPO discount," Luse said. "Second steps are done at 100% of pro forma book value or higher. Investors say, 'Why should I invest in this?' Everyone is looking for a bargain."

At least two of the companies that withdrew offerings over the past year had been planning to do a second step — the $700 million-asset Ocean Shore Holding Co. in Ocean City, N.J., and the $156 million-asset Home Federal Bancorp Inc. in Shreveport, La., according to Sterne Agee.

But observers say Northwest — which had done its initial offering in 1994, and an incremental one in 2003 — could do well with its planned second step, in which it will sell the remaining 63% of its stock.

They cited its asset size and the potential for the company to use the capital for growth.

"Northwest is a pretty strong company, so their ability to get a second step done is greater than that of a smaller company," said Luse, who is working with both OmniAmerican and Northwest. "The larger-cap companies have more liquidity in their stock. In this market, investors want more liquidity."

Omni, which is planning a full conversion, is a former credit union and has had anything but a smooth ride since it decided to make the switch to a mutual in 2005.

Only after a court battle with its regulator was Omni able to change its credit union charter in January 2006.

It had intended to go public the following year, but put off the plan when Larry E. Duckworth, who had been the company's CEO since 1990, died.

OmniAmerican declined to comment for this story. Luse said terms of the offering have not been determined, but the conversion is expected to be completed in the first quarter.

Theodore Kovaleff, an analyst at Horowitz & Associates Inc. and a frequent investor in converted mutuals, said doing a full conversion, as OmniAmerican has proposed, is preferable to investors.

"All things being equal, investors would rather have a fully public entity than a mutual holding company," Kovaleff said. "The mutual holding company freezes the shareholder out of a lot of decisions," because the company itself owns the majority of the shares.

Analysts said Territorial's pristine asset quality and its large asset size compared with other mutuals that have gone public recently helped make its offering attractive.

Because it was oversubscribed by depositors, the company increased the offering size to what is called the supermaximum level, selling 12.2 million shares at $10 each.

The pricing worked out to about 60% of Territorial's tangible book value — which likely factored into the stock's strong performance.

The shares shot up 50% on the first day of trading, delivering the first-day pop that made such investments legend but that had become rare in recent years.

Kovaleff speculated that more thrifts mulling conversions might be swayed to move forward by the uncertainty surrounding Office of Thrift Supervision's future.

"That kind of consolidation or restructuring always causes bumps in the road as far as getting deals through regulators," he said. "Theoretically they could change the regulations and how they interpret the rules."

Northwest's Wagner said the administration's push to eliminate the OTS is a concern but did not factor into his company's decision to do a second-step offering now. "The primary decision resulted from our desire to get additional capital and grow the company," he said.

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