Regional Bank Conversion Activity at All-Time High

May 18, 2010

With approximately 20 demutualized thrift deals underway in the regional banking sector — and the majority of these in the Northeast — conversion activity among the nation’s smaller banks has reached its highest point since the 1990s, Stifel Nicolaus Analyst Laurie Hunsicker says.

“To the extent that a mutual bank is considering any sort of growth opportunities, the attractiveness of stock as a currency is very important, and obviously that’s not an option if a bank decides to remain mutual,” said Hunsicker, who considers now to be a very attractive time for mutual banks to unlock value and raise capital.

“Not only are valuations right, but also where we are with respect to the M&A cycle starting to come back into vogue — or frankly even for those mutuals that want to go out and bid on the FDIC deals — I think having extra cash around certainly helps,” she added.

According to Hunsicker, conversion banks present attractive investment opportunities to investors, as these banks tend to have conservatively managed balance sheets, including low non-performing loans, high credit quality and excess capital.

“Most management teams are aware of the playbook in terms of how to return it back to shareholders via buybacks, dividends and select growth opportunities,” Hunsicker said. “And certainly many of the bank execs are very incentivized and see themselves per the conversion template as very large owners.”