On March 6, 2017, the board of directors of *****Eagle Savings Bank, Cincinnati, OH announced plans to convert from a mutual to a stock form of ownership. The difference: a mutual is owned by its depositors and is free to reinvest its profits back into itself whereas a stock institution is owned by shareholders, many of whom are depositors, but not all.
After being very popular in the 1980s and ’90s, the conversion rate of mutual to stock slowed to a crawl in recent years. It seems to be heating back up as there have been several such announcements in the last six months. A stock conversion allows the bank to raise capital by selling stock ownership. Eagle reportedly hopes to sell 2.2 million shares and raise $22.5 million, which it expects will fund growth opportunities.
*****PCSB Bank, Brewster, NY, a $1.2 billion asset bank and its new holding company, PCSB Financial Corp, commenced a stock offering to depositors at $10 per share on February 14th. Due to inclement weather, the 30 day sale period was extended through the end of the business day Friday, March 17th. A special meeting will be held to determine if any will then be offered to the general public.
Another, ****Huntingdon Valley Bank, Huntingdon Valley, PA and its new parent, HV Bancorp, Inc. did likewise in November and began trading on the Nasdaq in January.
Conversions like this don’t pose any immediate threat to the community nature of the bank as most, if not all, of the original stockholders are depositors who care about the bank and the community. But, there are some that are not quite so benign.
The more common of these is the investor who has opened accounts at mutuals across the country solely to cash in if it ever does go public. If it does, as a depositor of record, the investor can buy at the low offering rate (generally $10) and then sell when the stock hits his or her preferred price point. Less common, but more sinister, is the investor who pushes for the bank to go public in the hopes to force it into a sale. In this event, the sale would most likely go to the highest bidder, not necessarily the best bank to fit the needs of the community.
To avoid these pitfalls, some mutuals have converted in such a way they have the best of both worlds. *****Pentucket Bank, Haverhill, MA is one such bank. In a multi-step process, Pentucket Bank has established two holding companies: a top-tier mutual holding company and a mid-tier H.C. which holds 100% of the stock of the bank and is owned by the top tier mutual. While a bit convoluted, this process allows the bank to raise capital without risking its independence. While the bank itself is no longer a mutual, its top-tier holding company remains so.