Officials at Brookline Bancorp, based at 160 Washington St. in Brookline, hope the bank’s complete conversion to a public company paves the way for future acquisitions and growth.

Competition drives change and business must keep up. For that reason, Brookline Bancorp has begun the second phase of a conversion process to become a fully public company by the end of the summer.

Growing the bank had become difficult under its current structure, a mix of public and private business. Additionally, industry watchers on Wall Street didn’t completely understand the corporate structure and, as a result, some investors were leery of investing there. Reaction to the announcement the day after was great, according to analysts.

“It’s the post-Enron era. The market is very enthusiastic about companies that are plain vanilla and have strong balance sheets, a lot of transparency,” said Richard P. Chapman Jr., president and chief executive officer of Brookline Bancorp. The complex arrangement of Brookline Bancorp was becoming a detriment to growth, he said.

The structure Brookline had was really three entities, explained Chapman. Brookline owns Brookline Savings Bank and recently folded in its Internet entity, Lighthouse Bank, back into the bank’s parent company. Lighthouse for a time was a separate company. Brookline Bancorp is a publicly traded company on Nasdaq. However, only 42 percent of the bank’s shares were up for trade. The other 58 percent is owned by Brookline Bancorp Mutual Holding Co. Those are the shares that are being sold to the public under the second-step conversion process.

“There are 15.4 million shares owned by the mutual holding company. We’re going to raise a considerable sum of money by selling that stock,” said Chapman. The capital will help Brookline expand both internally and with acquisitions.

“In the past we were very limited in our ability to buy another institution with stock because, under [regulatory guidelines], we could not issue stock in an acquisition that would reduce the mutual holding company’s ownership in Brookline Bancorp below 51 percent,” said Chapman. As a result, Brookline found itself hindered while competing with fully publicly traded companies to acquire another bank. While competitors had the option of offering stock transactions, Brookline was only able to offer cash. Such a deal often is unattractive, since it would result in the selling company having to pay substantial capital gains taxes.

While some prefer a cash sale instead of stock, many more prefer stock, Chapman said. “But being a fully public company enables you to do it the way they want to have it done. You can respond more to the seller’s requirements or wishes.”

Brookline could have chosen to stay in the mutual holding company, or MHC, structure indefinitely, according to Ryan Kelley, associate analyst at Arlington, Va.-based Friedman, Billings, Ramsey Group. But the market reacted favorably to the conversion because it doesn’t fully trust that structure.

Kelley said that investors are nervous about management accountability when private ownership, through the board of directors, has 55 percent voting power. “They may not always have the shareholders in mind,” said Kelley, who quickly pointed out that is just a fear in the marketplace and Brookline had always been shareholder-friendly.

“It’s a risk out there with MHCs in general. The other thing it [the conversion to a wholly public company] does is allows them greater flexibility in continuing to grow their franchise [and] also to potentially do acquisitions in the Boston marketplace,” said Kelley.

Acquisition Target?

While Chapman said he hopes to grow the bank, he isn’t putting any wildly speculative percentages out there. “We’re not putting up any huge numbers; we’re not trying to set unrealistic goals. I think the biggest way to get in trouble at a bank is to set very ambitious growth goals,” he said.

But acquisition is not the only opportunity the bank will pursue. Increasing its market share in the lending area is another goal Brookline has set, Chapman said.

Of course, there are downsides to the conversion process, as well, including increased pressure to succeed. “You’re now a fully public company and you have to answer to your shareholders … You have to perform. There’s a lot of capital coming and you have to put it to work effectively and provide a good return over time,” said Chapman.

Just because the company will soon be flush with capital doesn’t mean the leopard will “change its spots,” however, Chapman said. “A lot of people have said to me we’ve been very restrained and prudent with that capital [gained in the first, partial public offering in 1998] and that has been very important to them. We will continue to be so.”

Another downside to converting to a public company, depending on how you look at it, is that Brookline likely becomes a more desirable acquisition target itself, a situation from which the bank historically had been somewhat insulated.

“When you’re an MHC, you don’t have as many companies out there that can purchase you,” said Kelley. Regulations set up by the overseeing body, the Office of Thrift Supervision, restrict the conditions under which an MHC can be acquired. “The only ones that can take them over is another MHC and there are only about 40 of those out there at this time,” he said. In addition to MHCs, mutual banks also are allowed to acquire other MHCs.

“Once they do this full second step conversion, [Brookline Bancorp] will be acquirable by any publicly traded bank or thrift out there,” said Kelley.

That’s significant because Kelley predicts in the next two years, the Massachusetts marketplace will another surge in mergers and consolidation. Already entities like Banknorth Group, which acquired three Massachusetts banks in the past year, have earned the reputation of being industry consolidators.

“With Brookline coming out and having all this capital, we would expect that they would also be looking to acquisitions in and around their market area,” Kelley said.

A year ago, Brookline announced it would be folding its faltering Internet entity, Lighthouse Bank, back into the company, but that loss has already been fully absorbed, said Chapman. “Lighthouse Bank was actually a very small thing for us,” said Chapman.

“That had no impact on our thinking going forward. We regarded it as R&D [research and development] expense,” he said, adding that bank officials regarded it as a new distribution channel that ultimately did not gain the acceptance many thought it would.

Kelley said that while Lighthouse was a major cost to Brookline, they’ve been able to fold it back into the bank and restructure the company so that it provides “great online services to the customers they already have,” thus putting the expense to good use.

“Going forward, I don’t think [capital] will be funneled into that area of their company. I think more likely they will look to do acquisitions and potentially grow via new branching. Capital always helps when you’re doing that,” said Kelley.

Brookline announced the final stage of the public conversion on April 10. By April 11, the company’s stock had jumped to $23.42 from $22.09 a day before. It has continued to climb, reaching $25.06 at the close of business on May 2. That’s considerably higher than a year ago after its April 19 annual meeting and announcement of the death of Lighthouse when shares traded at $13.71.

“We think this is a great step forward for the company,” said Kelley. “This takes them out of a very confusing structure and puts them into a structure that is more well-understood and the recent move in the stock price has shown [Wall Street’s positive] take on their plans to do a second step.”