Conversion activity and deal proceeds fell to record lows in 2022.
Conversion volume, proceeds tumble
Just five mutual bank conversions totaling $322.5 million in gross proceeds were completed last year, down from 13 deals with an aggregate $842.9 million in gross proceeds in 2021. The number of deals was tied for the lowest this century with the transaction volume seen in 2020 and 2018. Gross proceeds reached this century's nadir; the only other years since 2000 where they even fell below the $400 million mark were 2016 and 2017.
Bronx, N.Y.-based Ponce Financial Group Inc. claimed the title of largest deal of the year by gross proceeds. Its second-stage conversion, the only one in 2022, raised $133.2 million. The pro forma valuation was 86.2% of tangible book value, the highest second-stage ratio since Amesbury, Mass.-based Provident Bancorp Inc. in 2019. Ponce Financial previously had completed a mutual holding company conversion in 2017.
CFSB Bancorp Inc. represented the lone MHC conversion completed in 2022. The Quincy, Mass.-based bank had the weakest market performance among the conversion class of 2022 in terms of both its first trading day and its year-to-date performance after hitting the public market.
Everett, Mass.-based ECB Bancorp Inc. was the top market performer in the group. It followed up a 40.9% conversion pop with an increase of 13.9% for the remainder of 2022. ECB Bancorp's $89.2 million standard conversion was the second-largest deal of the year.
The other two standard deals — Van Wert, Ohio-based VWF Bancorp Inc.'s conversion and Waukegan, Ill.-based NSTS Bancorp Inc.'s conversion — had a first-day price increases in excess of 25%. VWF Bancorp's shares continued to rise over the course of the year, while NSTS Bancorp's stock slid 19.5% through the end of 2022.
The valuation for each standard conversion was below the 10-year median of 64.6% of pro forma tangible book value. In particular, VWF Bancorp's conversion pricing of just over 50% provided an opportunity for sustained market gains.
Dry pipeline
The conversion pipeline is nearly empty with just three deals. But there still are close to 400 mutuals and non-stock MHCs that could announce a deal, in addition to 22 public MHCs.
Rising rates may be a catalyst for increased activity. A conversion could bolster capital levels for any mutual bank burdened with substantial unrealized securities losses.