An Update On My Mutual Conversion Investment

An Update On My Mutual Conversion Investment

Winner, Winner, Chicken Dinner

That phrase has multiple meanings depending on where you look, so I will cut to the chase. I wanted to wait until we finally sold our shares in our first mutual conversion before I posted an update. As of May 1, 2017, we officially sold our shares in Putnam County Savings Bank (PCSB), a small community bank located in Westchester County, New York, for $16.28. With a cost basis of $10 per share, that’s a gain of 63%. On its first day of trading on April 21st, the stock popped 64.6%, which made it one of the largest mutual to stock conversion in the last decade.

To be completely honest, having a pop that large in a mutual conversion is not likely as they tend to average around 20% on day 1, but we apparently got extremely lucky with this one! As I mentioned above and in previous posts, my husband and I have spent a tremendous amount of time researching the process, the risks and the rewards. The process started 2 years ago when my husband opened a $1,000 one-year CD at PCSB. Once the CD was opened he began doing research on why banks convert, the likelihood of conversion and the possible gains when they do convert. Picking PCSB wasn’t lucky (the gain percentage itself is a different story). In fact, the decision to have PCSB be our first conversion was based on research. Some of the things we discussed and considered were:

  • Health of the bank
  • Community/geographic area
  • Growth prospects

PCSB is located in the Lower Hudson Valley of New York, one of the wealthiest areas of the country. The bank currently operates 16 branches in four counties north of New York City: Westchester (9), Putnam (3), Dutchess (3) and Rockland (1). According to, Putnam ranks as the 12th-wealthiest U.S. county by 2017 median household income, while Westchester and Rockland are No. 58 and No. 59, respectively.

The weighted average of PCSB’s deposit franchise by county is $92,470, well above the national aggregate of $57,462. Further, in 2015 PCSB acquired CMS Bancorp Inc., which helped propel its loan growth higher, especially commercial real estate (CRE) loan growth as indicated by the chart below. Couple the above facts with a strong asset quality, PCSB seemed like a great place to be our first mutual to stock conversion candidate. The key word in that sentence is candidate, as there is no guarantee that a bank will convert and go public. In actuality, some mutual banks never will. The positive side of that is that if you open a CD at a mutual bank that doesn’t go public in a few years, you don’t lose any money. Actually, not only do you not lose money; you make money on your deposit while you wait.

If you would like more detailed information on the process, visit my previous post here.

Now What?

Some of you may be wondering exactly how much we made on the transaction. Unfortunately, I’m not going to disclose certain dollar amounts at this time, but I thought it would be a good idea to provide a quick summary on how we plan to use some of the proceeds. So, here we go.

  1. Pay off the car: My husband and I aren’t big fans of debt, especially for things like cars. We bought a used car that came with a financing rate we couldn’t refuse, so at the time we put as much down as we felt comfortable with and financed the rest. While the rate is super low for a used car (less than 1%), debt is still debt and if we can get rid of it, why wait? Plus, as mentioned in my post about short-term goals, I set a goal to pay off my car by the end of this year, so I am happy it’s being done ahead of schedule!
  2. Max out our IRAs: While my husband has been maxing out his personal IRA for a few years, I wanted to join the party and started increasing my savings last year. This year I made it a goal to max out my IRA contributions, so we figured why not use some of the gains from this transaction to get me across the finish line early. To keep our monthly cash flows consistent, we will contribute the remaining amount to max out my husband’s IRA and then increase my monthly contributions to have me fully maxed out by October.
  3. Pay it forward: As mentioned in a prior post, we love to give back, so, naturally, we wanted to take a portion of proceeds and donate it back to others in need. We started with a donation to the Bowery Mission and are looking into setting up a scholarship for a student or two at our old high schools. We figured it would be a nice way to give back and possibly help a student reduce his/her student loan debt.
  4. More mutual banks, please!: With the remaining amount, our plan is to open CDs at other conversion candidates, in order to be able to participate in future deals like the PCSB one. Want to stay in the loop on our future conversion prospects? Join our monthly newsletter! Our plan is to provide updates throughout the year on new mutual banks we have opened, or plan to open, a CD or savings account with. While there is no guarantee, we at least want to do some research and see if there are some opportunities out there worth considering.

So, who’s interested in participating in a mutual conversion? Is anyone planning to do this?

16 thoughts on “An Update On My Mutual Conversion Investment

  1. Wow, you made out like a bandit! Fantastic job, a 60+% return in 2 years is incredible. How did you find this bank in the first place, and how did you do the research? How to you find mutual banks that will end up going public?

    1. Thanks! Great questions. I plan to provide more detail in my newsletters (which I’m still working on getting set up), but here’s the quick version! My husband’s father used to work in banking and he’s the one who informed us of this whole process, so began searching for banks in our area. PCSB’s headquarters is actually in our town, so we were a little more familiar with this bank than others. However, for seeking out other banks, we are researching small banks we drive by (once you do this you’d be surprised how many there are that you just have never noticed before). Once we found a few we were interested in we checked to see if they were public yet, simply by typing there name in Google. If they’re public they will have a ticker symbol associated with them. If they were still private we did a little more research to confirm that it was a mutual institution. As for knowing which ones are going to go public, there is no magic behind that. Some may never go public. I will provide more details in the newsletters, but one thing to look for is a banks need for capital. With many local banks, once deposit growth has leveled off, they will start to look for alternative ways to grow. One way to grow through acquisitions and the other is to convert to a stock based bank because in the process you get the capital from the conversion. The other thing to consider is the area in which the bank operates. If the bank is doing business in a wealthy or stable part of the state, there is a greater probability that the assets that bank holds are safer (lower credit risk from borrowers) which in turn means the bank itself is likely safer in the sense that it has a higher quality loan portfolio.

  2. Congrats on the awesome return. It’s great to see the various things you plan to do with the proceeds, especially the donation part to your local community (good karma :-). We have Bank of America and a Credit Union as our banks so I’m not sure if I can participate in this. Although it is enticing me to open an account elsewhere in a smaller bank to see the possibility of them converting in the future is there.

    1. Thank you!

      Yes, as you mentioned those 2 accounts wouldn’t allow you to participate in something like that being that BOA is already public and credit unions aren’t mutual banks. However, if you’ve got some savings aside, you can move small deposits into a few banks to give you the opportunity!

  3. Wow you did awesome. I am definitely going to read some more about what you do this weekend. Sounds like it’s incredibly smart investing and something that I should be doing!!! Thanks for sharing!!!

    1. You’re very welcome! I’m glad I’ve got you intrigued. This one really worked out well, but as mentioned this gain was bigger than the average. But at 20% with just one investment, it’s really not bad. Especially because all that’s required to get you the participation in the IPO is an account where you can make money off interest anyway! So it’s pretty much a win-win even if the bank doesn’t decide to go public.

  4. You can pay the $400 yearly fee to join where a group of mutual convert pros reside. Problem with your analysis is that your local mutual is about the only mutual that will let you open an account (or buy a CD). 99% of your readers would not have had the opportunity you had simply because they would not have been permitted to open an account. There too, the mediocre mutuals with a couple branches and less than 300M in deposits aren’t worth much more than a 20% ‘pop’ – which constitutes the lion’s share of mutual in existence.
    There are those who evade and get utility bills in their name to open ‘false’ accounts. But even then, the converts limit the number of shares (a maximum limit) on what you will be permitted to buy.


    1. You are correct in that a majority of mutual banks only allow locals to open accounts, that is not the case for ALL. My husband and I have opened accounts in CT, MA, ME and OH, along with many in NY because that is where we reside. It’s really a matter of doing your research and many allow you to open accounts online.

      Yes, many mutuals may only make you a return of about 20%, but 20% is still higher than many other investments one would make.

      1. You can open P.O. boxes quite easily which makes you a local. And then close it as once accounts are opened the requirement to be a resident goes away as people are allowed to move. I would like to join newsletter but can’t find out how? Any other mutual conversions on the horizon?

  5. Interesting concept for sure. Guess I’ll need to go back and do some research. Would love the chance to get in on something like that. Thanks for sharing your knowledge.

    1. You’re very welcome! If you sign up for my newsletter I’ll be sending out monthly emails containing new mutual banks that aren’t public yet 🙂

  6. just saw this blog… am interested in these investments. How do I get newsletter? or see what other cndidates there are out there? thanks

  7. Courtney, congratulations and great job on profiting off this conversion! An average of 20% per conversion sounds good, but these appear to be a bit rare which raises the following question: There were a total of 5 in all of 2017. So let’s say, you open 50 accounts with $500 in each. If one of yours converts every other year (about 1% of all mutuals in the country on average converted in the last few years), you need to bring in additional funds to actually purchase the equity. For that, say, you need to set aside another $10,000 in readily available funds. With the 10,000 plus the 100 in the converting bank, you can make $2020 each time (at 20%). Your total capital tied up is $35,000. So it’d actually appear to be a return of 2.88% per annum plus, say, 1% on the CDs, so 3.88% total. Is this really better than simply having your money in index funds for the long term? Please let me know your thoughts and whether I’ve made a mistake in my understanding here.

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