"NorthEast Community Bancorp, Inc. Announces Adoption of Plan of Conversion and Reorganization" $NECB

More small bank news. This was announced yesterday:

NorthEast Community Bancorp, Inc. (OTC: NECB) (the “Company”), a majority owned subsidiary of NorthEast Community Bancorp, MHC (the “MHC”), and the parent holding company of NorthEast Community Bank (the “Bank”) announced today that its Board of Directors, together with the Boards of Directors of MHC and the Bank, have unanimously adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”).

Pursuant to the Plan of Conversion, the MHC will sell its majority ownership in the Company to the public and the Company, which is currently in the mutual holding company structure, will reorganize to a fully public stock holding company in a transaction commonly referred to as a “second step” conversion.

As part of the second step conversion, the Bank will become a wholly owned subsidiary of a new holding company to be formed in connection with the transaction. Shares of common stock of the Company held by persons other than the MHC (whose shares will be canceled) will be converted into shares of common stock of the new holding company pursuant to an exchange ratio intended to preserve the percentage ownership interests of such persons.

This one was a Stilwell activist play. The share price has increased from $10.75 to about $12.50 on the news.

As of the last 10-Q that was filed before NECB deregistered (November 2015), there were 12,223,802 shares of common stock outstanding. However, an important adjustment needs to be made which is "NorthEast Community Bancorp MHC held 7,273,750 shares, or 59.5%, of the Company’s issued and outstanding common stock, and the minority public shareholders held 40.5% of outstanding stock, at September 30, 2015." 

However, according to the proxy statement for this year's annual meeting, "as of the close of business on March 25, 2020, a total of 12,194,611 shares of NorthEast Community Bancorp common stock were outstanding". So, only 4,920,861 shares are actually "owned" by anyone besides the mutual holding company.

As of June 30, 2020, total shareholder equity was $147.48 million. The end of year balance sheet showed no goodwill or intangibles.

If you assume that the remaining 7.27 million shares are sold for $12.50 (the current trading price), then they will bring in $91 million and shareholder equity will increase to $238 million. Meanwhile, the total denominator will be 12.19 million shares outstanding. That would make the book value per share $19.52 after the second step.

Since shares are currently trading for $12.50, the price to book post-conversion would be 64%. 

The price the remaining shares will be sold for is the big unknown, though. If they are sold for only $10, it would reduce the sales proceeds, post-conversion book value, and raise the price to book ratio to more like 70%.