Columbia Financial Inc.: Mutual Conversion

A lot has happened in the past year with one of my favorite investing topics: mutual bank conversions. Well, a lot in the world of mutual conversions which doesn’t happen that often, but when it does it can be extremely rewarding if you are deposit holder at the institution that is going public. As you may recall, last year Putnam County Savings Bank (ticker symbol PCSB) went public and we got to experience the joy of being part of an IPO. You can read more about that here. I want to talk about another bank that converted from a mutual holding company to a stock based institution and the results of that conversion, as well as provide a general update on the industry. That bank is Columbia Financial Inc.

Columbia Financial Background

Columbia Financial Inc. (ticker symbol CLBK) based in Fair Lawn, N.J. and operates 48 branches throughout New Jersey. One-third of its branch network and 40% of its deposits are in Bergen County. Eight of its branches are in southwest New Jersey, in the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD metropolitan statistical area, within the counties of Burlington, Gloucester and Camden. The weighted average 2018 median household income for the Columbia Financial branches is approximately $86,000, well above the average household income for the US which is approximately $64,000 (this statistic is important;  more on that later).

Revamping Its Loan and Deposit Base

Columbia Financial, like many others in the industry, has been focusing on originating commercial loans. As stated in the publicly filed prospectus, “In the past year, we hired additional lenders with significant experience in our market area to expand our commercial real estate and commercial and industrial lending efforts.” As it relates to the deposit base, Columbia Financial has also increased its non-interest bearing deposits and municipal deposit base. Further, the company’s non-accrual and net charge off to average loans has been trending down over the past few quarters.

The Conversion

Columbia Financial was one of the largest mutual holding company conversions in history with gross proceeds from the offering just shy of $500 million. With a base of more than $5 billion, attractive market demographics and ample insider purchases, it’s hard not to like this well run financial institution.

On April 20th 2018, Columbia Financial started trading on the NASDAQ. Just like Putnam County Saving Bank, deposit holders had the option to buy shares at $10 dollars (if you received an allocation, again, more on that later) and you were very lucky if you had the opportunity to buy. Similar to PCSB, Columbia shot up to over $15 dollars on April 20th, ultimately closing at 15.42 for a 54.2 % gain. That one day return is pretty hard to beat!

There was one downside to Columbia Financial’s issuance, at least from a deposit holder/potential investor standpoint, and that was around the allocations. Because Columbia was an extremely large, well-run bank operating in affluent area as depicted above by the average household income levels, it was extremely difficult to receive shares in the offering if you had a small deposit before they announced they were going public.

While my husband and I did not hold any deposits here, and were therefore not purchasers of the shares, we did know a few people who were. In short, a $25,000 deposit at the bank still did not receive full allocation rights, which means if you wanted to purchase 55,000 shares at $10 (which was the max), you may have only been allocated, say, 21,000 shares out of the 55,000. This was because the offering was oversubscribed, which occurs when there is a lot of interest in the IPO shares from depositors and investors. The other factor to consider is the max allowable shares per person. At 55,000 shares, those individuals with large deposits could potentially purchase all 55,000, which leaves less for those individuals low deposit amounts held at the bank.

A common question I get is will there be more conversions, and if so, how do I know which ones to pick. The answer to the second part of that questions is simple. You never know which ones to pick, but in my original post about mutual banks I did write about some things to look for when opening deposit accounts at certain financial institutions. To address the first part of the question, let me provide an update on where we stand this year. Note: I tend to focus on the Tristate area (NY, NJ, CT) because that’s where I live, but mutual banks go public all over the country.

Mutual Bank Industry Update

As of October 3rd, there were 3 more banks that have filed registration statements with the SEC to start the conversion process. See the chart below for the three banks.

My husband and I were so close on Rhinebeck, as we have an account there. We missed the eligible record date by 2 months!! You win some, you lose some. We still may get some shares, but it’s not likely as this will probably be oversubscribed, as well.

Mutual holding company conversion activity is making a comeback. While nothing is guaranteed I would expect to see more first-stage conversion announcements through the end of the year and into early 2019. This is grounded in the fact that banking share prices are on the rise again and valuations are getting back to normal, or at least close, which is typically around 1 to 1.5x book.

Best of luck to all of my readers who are involved or want to get involved in investing in mutual bank conversions!

Did anyone participate in the Columbia Financial offering? If so, how was your experience? If not, are you aware of any banks that have done this in your state/area?

13 thoughts on “Columbia Financial Inc.: Mutual Conversion

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  1. Hi Courtney
    I did get some shares in the Columbia IPO although it ended up you needed about 63K to get full allocation . One of the worst conversion rates of shares received per dollar deposit that I have ever seen I like Columbia’s potential andcam holding my shares to try and maximize my profit
    Looking forward to the other three IPOs you listed

    1. I disagree. What is being discussed in this article and similar ones like it, is information that is already available to the public . In order to participate in the offering you would of had to have shares at the eligible record date which is usually 6 months or greater in the past. If you happen to have an account at the institution that is going public you would receive a prospectus laying out the information about the offering and the number of shares available for purchase. Allocations are based on interest of the deposit holders as of the eligible recorded date and can often be affected by the number of max shares available for purchase for groups and individuals. If the group and individual purchase max is capped at a lower amount, it’s likely that more deposit holders will be able to participate in the offering.

    1. Rhinebeck on a price to earnings is not cheap, but on a price to tangible book it is cheap. I would expect between a 20-30% IPO pop. Lower than Columbia and PCSB but still good in my opinion.

        1. Auto loans are fine because they’re fully collateralized. As far as the non-current to current loans, that obviously is a concern/risk. This is why I think the IPO pop will be lower than Columbia, PCSB and the like.

  2. I’m relatively new to mutual conversions.

    I got in on the idea with PCSB since I was a long time account holder (from the Community Mutual bank days) and have now opened just a couple of accounts at other mutual savings banks.

    So I’m 2nd (or is that 3rd?) tier with Rhinebeck since my account was only opened last year.

    Is the concentration on auto loans unique compared to other recent conversions? Makes the valuation difficult. I’m still long on PCSB and don’t feel its worth cashing out.


    1. Welcome to the world of mutual of conversions!

      Of the recent conversions that I’m familiar with, this exposure is definitely but not unique for the industry.

      I believe you are 2nd tier for Rhinebeck so fingers crossed for you!!

  3. are you sure you have the date right on pyramax because I have to decide if I want to buy 10000 shares at $10.00 a share by December 13. 2018 on their conversion of 45% of the bank. I do not know if this is a good deal. maybe you could advise me as to what to do. thank you

    1. Hi Robert. Are you referring to the eligibility date? If so, the prospectus states March 15, 2017.

      Unfortunately, we did not meet eligibility for PyraMax, so we will not be able to participate. I wish I could help you make your decision 🙁

  4. For some reason, I wasn’t getting the comments
    I agree with banking for fun
    The more you talk about this here, the worse the allocations will be.

    Rhinebeck will not make tier 2 even in a bad market.

    Many long timers stayed away for

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