Ms. Hunsicker: I cover community banks and thrifts. That is the only sector that I follow, and I follow 18 companies.
TWST: Are they in a specific region?
Ms. Hunsicker: Most of them are in the Northeast. There is a very heavy emphasis on New England, but I also follow a bank in Hawaii that is a conversion. That is a subset I follow as well. I follow the recent demutualized thrifts, that's the whole area that Peter Lynch turned the spotlight on in late 1980s and early 1990s. Generally speaking, while these companies are newly public, they are not new banks. Many of them are 100 to 150 years old. They're just newly public and became public in a demutualized process where shares are sold to depositors.
TWST: How has the recent financial crisis impacted the demutualization?
Ms. Hunsicker: In theory, it should speed it up. But we really haven't seen that. Most of the demutualized thrifts that convert are not in need of capital. So unlike much of the rest of the industry, which is very capital constrained - causing many banks to come into the market for capital and pursue capital retention programs that put buyback plans on hold, or cut dividends and so forth - the demutualized thrifts tend to fall into a separate category. They are coming to market but not typically because they need the capital. Rather they want stock ownership and this is a perfect time to be coming public because it is the one type of IPO where both new investors and existing management end up sitting on the same side of the table. When we see cycles like this appraisals fall, it becomes a fantastic time for mutuals to consider converting. One of the more recent bank stocks to convert, Territorial Bancorp in Hawaii, actually came out to depositors at 59% book. Two years ago, its appraisal probably would have been around 85% book. So it's a complete win-win. The stock opened up 40% on the first day, the IPO opened at $14 and change and proceeded to close at $15 - still up 50% and still a bargain at that level. It was win for depositors, a win for insiders and certainly anybody that's purchasing any aftermarket shares while they are still trading at a discount to book. That's because the bank has a whistle-clean balance sheet and has excess capital - all the things that investors would like to see. And generally speaking, these demutualized thrifts, when they come public they are out there paying a dividend and repurchasing shares. So they are a very unique subset to the community bank sector. But I think overall, when we look at what's going on in the overall banking industry, there is a huge focus on the two Cs, capital and credit, and obviously that's kind of a broader sort of look.
Tickers included in this excerpt: BAC, CBNK, DNBK, ESSA, LBAI, TBNK, TD, UBNK, WFD
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