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John Matthews has more bank accounts than most people have shoes: more than a dozen, and counting.

His deposits, usually $1,000 in each account, are scattered in community banks throughout Eastern Massachusetts: Avidia Bank, Mutual One Bank, Needham Bank. But Matthews’s interest in these small, local institutions does not spring from some “It’s a Wonderful Life” nostalgia. Quite the opposite.

For more than two decades, the 76-year-old West Newton retiree has profited from the belief that these mutually owned banks, many started by local leaders more than a century ago, cannot all last. And when they are sold, he stands to earn thousands of dollars.


Matthews is among a type of investor, including the legendary Fidelity fund manager Peter Lynch, who bet on a competitive financial services market in which bigger is often better. The strategy involves opening deposit accounts at mutual banks, waiting for them to convert to stock companies, buying shares at the lower prices offered to depositors, and waiting again, this time for a larger rival to buy the bank and drive up share prices — often to double what the initial public offering’s price was.

Matthews used this strategy with Peoples Federal Savings Bank, bought earlier this year by Rockland Trust, and with Danversbank, acquired in 2011 by a Connecticut bank. When Peoples Federal went public in 2010, Matthews bought 6,000 shares for $60,000, or $10 a share. When Rockland bought the bank at about $21 a share, his investment grew to $126,000.

Matthews will not say how much he earned in all his transactions, only that they were lucrative.

“It’s perfectly legal,” said Matthews, a lanky former apartment building owner and property manager. “There is an opportunity for the average investor. They can take advantage of it.”

Bank executives, however, are wary of professional depositors, who do not take out loans or buy other services from the banks. Other critics say these investors contribute to the demise of small banks that are connected to their communities and help support local businesses, charities, and residents.


“They have no interests in these banks and the communities that they serve other than an opportunity to force the bank to be converted to stock and make a quick profit,” said Stanley Ragalevsky, a partner at the Boston law firm K&L Gates LLP who has represented many mutual banks.

Matthews, who keeps track of his bank accounts in file folders, rather than on computer spreadsheets, began making bank-conversion investments in the early 1990s when a business partner recommended the strategy to him. He said he is just a savvy investor, benefiting from trends driving bank consolidation.

As low interest rates squeeze lending profits and small banks face higher costs to comply with new financial regulations, many are left without sufficient capital to grow. To raise more capital, many have considered changing from mutual to stock companies.

Bank executives also have an incentive to convert, since they usually hold significant stakes in the institutions and could reap big payouts if the bank is sold. When Danversbank was sold to People’s United Financial Inc., the community bank’s chief executive, Kevin Bottomley, earned $16 million in compensation and other payments.

Last year, six Massachusetts banks, including Blue Hills Bank of Hyde Park, Melrose Cooperative Bank, and Pilgrim Bank of Cohasset, decided to sell stock to the public. The sales raised from $22 million for Pilgrim Bank to $278 million for Blue Hills. Under state law, these banks must wait three years before they can be sold to another institution.


For Matthews, his bank picking is as much a hobby as it is investing. He reads financial newspapers to determine which banks may convert and keeps track of bank stock prices post-conversion.

“You have to have the patience to wait,” Matthews said. “Guys stay up all night playing poker. Instead of playing poker, I do this.”
“You have to have the patience to wait,” Matthews said. “Guys stay up all night playing poker. Instead of playing poker, I do this.”David L Ryan/Globe Staff

“You have to have the patience to wait,” Matthews said. “People play bridge. Guys stay up all night playing poker. Instead of playing poker, I do this.”

Some of his mutual-to-stock bank investments have disappointed. The stock of Westfield Bank in Westfield, for example, is trading at about $7.58 a share, down from the IPO price of $10.

Other banks where he has accounts show no interest in going public. But Matthews is an optimist: “You never know, the management may change,” he said.

For banks preferring to remain mutually owned, depositors such as Matthews can be troublesome. They can lobby for conversions at sparsely attended annual meetings for depositors, said Julieann Thurlow, president of Reading Cooperative Bank.

When Reading’s depositors voted last year to make it harder for future bank boards to convert to a stock company, she was concerned that the investors would come out in force. They didn’t, and the measure passed.

Banks do not have to accept all deposits, and some may deny accounts to customers who live out of the area and are suspected of being speculators. Occasionally, Thurlow said, bankers have circulated watch lists among themselves of serial depositors.


Matthews said he was denied an account at a bank more than a decade ago because he lived outside of its service area. But mostly, banks want deposits, Matthews said. And if a mutual bank goes public, it needs depositors like him to buy stock.

He brushed off critics who charge that professional depositors contribute to the rise of big banks and fewer choices for consumers and businesses. All industries consolidate to get more efficient, Matthews said.

“It’s inevitable,” he said. “I’m participating in it. It’s going to happen anyway.”

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.