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 SNL.com, 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.
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.
- 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!
- 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.
- 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.
- 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.