PORT ANGELES — To position itself for continued growth, First Federal, the only locally owned community bank on the North Olympic Peninsula, wants to convert from a mutual, or depositor-owned, organization to a shareholder company that will sell stock.
The plan, to be submitted to state and federal regulators and the bank’s depositors within the next several months, follows a national trend in which mutuals like First Federal have converted to stock ownership to raise millions of dollars in new capital.
Common stock would be sold first to First Federal’s depositors and then, if shares are still available, to the general public.
“The board of directors of First Federal Savings and Loan Association of Port Angeles today announced plans for converting First Federal from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank and reorganizing simultaneously as a wholly owned subsidiary of a newly formed holding company,” the bank said in a statement.
The conversion “will enable us to continue to expand our lending and investment activities and to diversify our operations,” Richard G. Kott, a Port Angeles resident who is chairman of First Federal’s board, said in the statement, released by the bank Friday.
The move also would include the establishment of a new charitable foundation by the bank, “which will maintain our focus on future community giving,” Levon L. Mathews, the bank’s president and chief executive officer, said in an interview with the Peninsula Daily News.
The bank is well-known for its support of nonprofit groups, community development and civic projects — it donated $123,125 to 146 organizations in Jefferson and Clallam counties in 2011.
The conversion decision came after two years of extensive analysis by the board, Mathews told the PDN.
“We’re a strong bank, and we’re excited about this,” he said, adding that the move will not affect terms governing its savings and checking accounts and loans.
First Federal, which began in 1923, is based in Port Angeles and has branches there, Sequim, Port Townsend and Forks plus a lending center in the Kitsap County city of Poulsbo. It has more than 150 employees across the Peninsula.
Its total assets have grown from $388.6 million in 1996 to $716.6 million in 2009 to about $775.5 million as of March 31 this year.
In the bank’s statement, Mathews said:
“Shares of common stock in the holding company will be offered to current and certain former depositors of First Federal in a subscription offering and, if any shares remain, to the general public in a direct community offering and/or syndicated community offering.”
He outlined the steps for the conversion:
“The conversion to a stock company must first be approved by our regulators, namely the Washington Department of Financial Institutions, [state] Division of Banks and the Federal Deposit Insurance Corporation.
“Following this approval, our members as provided in our bylaws will vote on the conversion at a special meeting as required by FDIC regulations.
“We will also mail a prospectus to eligible subscribers and an order form for purchasing stock.
“The form will indicate the maximum number of shares that a member can purchase under the plan of conversion and will state a deadline for returning the order form.”
The price per share, according to the statement, and the number of shares to be offered will be determined first at the time the subscription offering begins (following a review of the pricing materials by the regulators) and will be updated prior to completion of the offering.
The total size of the offering will be determined by an independent appraisal.
“Following the conversion,” Mathews said, “our customers will continue to enjoy the same broad range of deposit and loan services at the same office locations by the same staff.
“The conversion will not affect the interest rates we pay or charge, the balance requirements or the maturities of either deposit or loan terms.
“Each account will continue to be fully insured by the full faith and credit of the United States government up to $250,000 for our customers’ security.”
The bank’s statement added:
“First Federal anticipates filing its conversion application with the [state] Division [of Banks] and the FDIC during the next several months.
“Depositors and borrowers of First Federal and the general public will be given the opportunity to review the proxy and offering materials, which will include financial and other facts on First Federal, before deciding whether to purchase any conversion stock.”
The Farmington Bank in Farmington, Conn., raised about $132 million in new capital from the sale of stock after it converted to a public company last year.
The bank, which previously had $1.5 billion in assets as a mutual, determined that the conversion was the best way for it “to continue as a competitive, independent financial services organization in a rapidly changing industry landscape.
“Recent changes in federal regulations have made it more important than ever for community banks to have in place new ways to raise capital.”
On Dec. 18, 2010, Barron’s, a business magazine, published an article, “Like Money in the Bank”:
“Amid a four-year bear market in small-capitalization financial stocks, a welcome investment trend is unfolding at savings-and-loan associations: a wave of mutual-bank conversions to stock ownership.
“Twenty-two thrifts have changed in structure this year, and another five deals are pending, compared with 26 that converted in 2007, at the height of the bull market.
“Investors would be wise to take note, as the new issues are coming to market at deep discounts, in some cases at 50 percent of book value.
“Converted thrifts have outperformed the broad market significantly in the past 20 years, and that could remain the case.”
“. . . Since the 1970s, when the industry was deregulated, thousands of mutuals have converted, raising more than $40 billion. Today, roughly 600 remain.”
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John Brewer, publisher and editor, can be reached at 360-417-3500 or at john.brewer@peninsuladailynews.com.
