Mutuals have faced very little resistance converting to public companies, though recent developments in Massachusetts suggest that resistance may be slowly building to a process viewed as critical to raising capital at many institutions.

Massachusetts, home to the most mutual thrifts by far, is where some customers and executives are trying to protect mutuals' distinctive culture.

Depositors at Beverly Bank in Beverly, Mass., last week rejected the $326 million-asset mutual's plans to convert to a wholly stock-owned bank. Industry observers said such an outcome is extraordinarily unusual and that most mutual conversion votes are mere formalities.

In a separate development, the board at Reading Co-operative Bank in Reading, Mass., wants depositors vote on a bylaw change that would require a two-thirds majority for a conversion. The $429 million-asset mutual also wants to change its bylaws to bar directors, officers and employees from buying Reading stock for five years following a conversion.

Depositors are expected to vote on the proposed changes during Reading's annual meeting in December, said Julieann Thurlow, the mutual's president and chief executive.

Such initiatives suggest that efforts to protect mutuals from disappearing may be intensifying, said Stan Ragalevsky, a lawyer at K&L Gates in Boston who advises mutuals.

"Trust is in short supply these days. The public is looking for organizations that they can trust and rely upon to treat them fairly," Ragalevsky said. "Mutuals have done that for more than a century. Why would they want to see that disappear?"

If the tide is indeed turning against conversions, it will be a David-versus-Goliath battle, since mutuals have been steadily abandoning their structure at the prospect of raising capital. The $17.5 billion-asset Investors Bancorp, in Short Hills, N.J., raised $2.2 billion from its May 7 second-step conversion. Beneficial Mutual Bancorp, a $4.4 billion-asset thrift in Philadelphia, could raise up to $895 million from its planned conversion, based on an estimate by Rick Weiss, an analyst at Boenning & Scattergood.

Smaller mutuals are also planning plan conversions, including Pathfinder Bancorp, a $504 million-asset mutual in Oswego, N.Y., that plans to raise up to $27 million.

Clear financial rewards will continue to prompt mutuals to convert, said Kip Weissman, a lawyer at Luse Gorman who advises mutuals on conversions.

"It's a good market [for conversions] and there are a lot of banks that feel they want to raise capital and get into a different [ownership] structure," Weissman said. "The interest level has increased dramatically and the pace of conversions has increased moderately."

The Beverly Bank vote raises questions about whether all planned conversions will be slam dunks. Some depositors may have voted against the conversion because of the experience of the similarly named Beverly National Bank, which was sold to Danversbank, said Mike Wheeler, Beverly Bank's CEO. (Danversbank was later sold to People's United Financial.)

"I think that was on the forethoughts of our depositors," Wheeler said. "Those conversions did not work out very well."

The Salem News in an Aug. 15 story quoted some Beverly Bank depositors who said they voted against the conversion because they were concerned about a loss of local control.

"It feels like it's been a community asset, certainly for our family," Laura Jinishian, who voted against the conversion, told the publication. "They haven't been very transparent in terms of what the ramifications are."

"I'm thrilled that the depositors [at Beverly] spoke up," Thurlow said. "The depositors are the owners, and they have actually spoken in this case. The community has spoken."

Beverly sought to convert because it needed capital for "additional growth and added relevancy in the community," Wheeler said. Now that mutuals are unable to issue trust-preferred securities, it's "almost impossible" for them to raise capital, he said.

Beverly had planned to open three branches by 2018 with the capital raised from its conversion. Those plans will now be reconsidered, Wheeler said, adding that the mutual's directors and management have not ruled out holding another vote.

Most conversion votes require only a simple majority, but the Massachusetts Division of Banks required Beverly to obtain a two-thirds majority. Wheeler, who said it was unclear why the state imposed that requirement, is trying to obtain an explanation from the commissioner.

A spokeswoman for the Massachusetts Division of Banks declined to comment. She also declined to make Commissioner David Cotney available for comment. Richard Schaberg, a banking lawyer at Hogan Lovells and counsel to Beverly, also declined to comment.

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