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2018 conversion year in review

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2018 conversion year in review

Mutual bank conversion activity slowed considerably in 2018, but the year was highlighted by the fourth-largest mutual holding company conversion in history in terms of gross proceeds.

Five conversions — two standard, two MHC and one second-stage — were completed in 2018, down from nine in 2017 and 24 in 2010. Aggregate gross proceeds were $577.7 million, the highest annual level since 2015.

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Fair Lawn, N.J.-based Columbia Financial Inc. (MHC) raised $498.3 million in gross proceeds, representing the biggest mutual bank conversion of any type since Fairfield, N.J.-based Kearny Financial Corp.'s second-stage deal in May 2015. The MHC offering was oversubscribed in Tier 1 and priced at the supermax of the offering range. On its first day of trading, the stock soared 54.2% from its initial public offering price of $10. Shares reached as high as $17.73 and finished the year at $15.29.

Baltimore-based CBM Bancorp's standard conversion offering also attracted a lot of investor interest, with supermax pricing and oversubscription by Tier 1 depositors and the employee stock ownership plan. The stock debuted up 28.0% and subsequently decreased 2.2% by the close of the year.

Pittsburgh-based SSB Bancorp Inc. (MHC) was the other MHC conversion completed in 2018 and was the only conversion from the class of 2018 with a negative IPO pop. SSB Bancorp declined 5.5% on its first day of trading and traded down another 8.5% in the remainder of the year. The offering priced at the supermax and was oversubscribed by supplemental eligible account holders.

Salem, Ind.-based Mid-Southern Bancorp Inc.'s second-stage conversion also experienced oversubscription in the supplemental eligible account holder tier and priced at the highest point in the range. The stock initially appreciated 24.5% and faded 7.1% after the first trading day through the end of the year.

Sidney, Neb.-based Sidney Federal Savings and Loan Association was the smallest standard conversion by gross proceeds in the last two decades, at $1.3 million. Sidney Federal's deal included an extended community offering and like the other conversions in 2018, ultimately priced at the supermax. As of Dec. 31, 2018, there were no recorded trades in the stock.

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A look ahead

Three MHC conversions are in the pipeline. Two — Greenfield, Wis.-based 1895 Bancorp Of Wisconsin Inc. and Poughkeepsie, N.Y.-based Rhinebeck Bancorp Inc. — are expected to complete their deals in January, while Wauwatosa, Wis.-based TEB Bancorp Inc. is slated for a spring IPO. 1895 Bancorp received subscription orders totaling between the minimum and midpoint of the offering range.

Conversion activity has slowed to a crawl this winter, with no announcements since early September 2018. In an interview, Eric Luse, co-founder of Luse Gorman PC, had projected a handful of conversion announcements by January.

As MHCs continue to deploy capital and prepare for the possibility of additional interest rate hikes, expect to see more second-stage conversions in 2019. Currently, there are 28 public MHCs, including seven that went public between 2015 and 2017.

And plenty of candidates remain for standard and MHC conversions, with more than 400 mutually owned banks operating in the U.S. About three-quarters of those mutuals held more than $100 million in total assets as of Sept. 30, 2018, including 62 in excess of $1 billion.

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Click here for a webinar on mutual bank conversions.

Click here to download a template showing the conversion pipeline, market performance of recent conversions, the valuations of mutual holding companies and the market and financial performance of current public thrifts.