This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Overlooked Banks Tend to Outperform

Stocks in this article: HCBK BNCL FXBT TFSL

Updates to add stock quotes.

NEW YORK ( TheStreet) -- Amid the roughly 1,300 publicly-traded banks and thrifts lies a group of semi-public institutions that are poorly understood and often overlooked by investors.

Known as mutual holding companies (MHCs), these banks have an unusual capital structure that offers some distinct advantages over more traditional names. Less than half their shares are publicly traded, and the rest are theoretically owned by the banks' depositors, though very few benefits accrue to them.

When these banks sell their remaining shares to the public, however, in a transaction known as a second-step offering, the potential upside is compelling. That is because existing shareholders don't get diluted in the deal as technically no new shares are being issued. Instead, existing shares are being released to the public markets, unlocking capital that the bank always had, according to M3 Funds' aptly-named portfolio manager Jason Stock, who recently discussed MHCs during a presentation before the Value Investing Congress in New York in mid-October.

Hudson City Bancorp (HCBK) was an MHC until it went fully public via a second-step offering in 2005. Its shares are up more than 30% since that time, and the company has the distinction of being the largest bank to not accept TARP funds. People United Financial (PBCT) announced its plan to do a second-step offering in Sept. 2006 before completing the conversion in April 2007. While its shares are essentially flat since the announcement date, the KBW Regional Banking ETF (KRE) is down about 50% over that same time period.

Seventeen MHCs have conducted second step offerings since 2005, and all but one, First Federal of Northern Michigan Bancorp Inc. (FFNM) has outperformed the SNL Thrift index since that event, according to data from SNL Financial. (The list does not include American Bancorp of New Jersey, which was sold to Investors Bancorp (ICBC) of New Jersey in May for $12.50 per share.)

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,561.89 +205.02 1.18%
S&P 500 2,037.81 +24.92 1.24%
NASDAQ 4,709.2010 +64.8890 1.40%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs