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?

55 thoughts on “An Update On My Mutual Conversion Investment

Add yours

  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?

        1. Government regulations now require a physical address, PO Boxes not allowed. Might have worked before 9/11, but not anymore. Mutuals are also really tough, many require you to live in a specific city or county.

    2. all true but on PCSB the limit was low 20,000 shares maximum, but the offering didn’t sell out, only hit the midpoint of the offering therefore with less float it popped about 63% on the first day of the IPO which is why it popped so much higher then normal, plus it was in a very well to do area
      Interestingly enough on this bank you did not have to be first tier(meaning your deposits did not have to be in about a year and a half before the IPO opening) so anyone could have walked in and opened an account weeks before the conversion and had access to 20,000 shares even with as little as $100 in your account. Needless to say this is the exception to the rule

      1. Let’s see how everyone does with columbia

        Will be heavily oversubscribed and no putnam pop.

        This was once in 100 years….
        Don’t think other ones like this

        1. Pcsb was partially the result of a large equity rally that occurred after the announcement and setting of the price. But it traded exactly how most of these conversions do. Are there any others u have visibility on that might go public? How do I join so I can see new ones.

  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

      1. Hi Jamie and David! I apologize for the delayed response. I was on a bit of a hiatus from blogging due to work and other life events, but I’m trying to pick up where I left off.

        There are several mutual banks that you can open online that do not have any residency requirements. While they are harder to find, they do exist! I’m hoping to get my newsletter up and running again soon where I share a mutual bank once a month to subscribers.

  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.

    1. Hi John. I apologize for the delayed response. While I do see your point of needing the funds to be readily available, there is no reason these funds need to just be sitting around. You can be invested in an index or mutual fund with daily liquidity, where the wait time would just be a few days before you can take it out of your trading account. You would receive notification about the conversion early enough that you would have ample time to sell your investments if that is where you choose to have your money in the meantime.

  8. Columbia will probably be oversubscribed by a wide margin
    55,000 shares is the maximum allocation
    Probably going to take a deposit of 40K to get full allocation
    Should be a healthy pop though

    1. Where did you get the 40k deposit to get allocation from. ?

      I agree ,
      Like I said Putnam was once in a lifetime. Others not this good and some have been down.
      The more people the harder it is for everyone….

      1. The 40K is just an estimate. No one knows what deposit will be required to get full allocation
        My educated guess is based on the following facts
        1 Columbia was open to out of state deposits for many years so the professional depositors are there and will be applying for large blocks of shares
        2 Columbia is located in an invedtor savy area who understand the opportunity
        3 there are many hasedum who tend to invest as a group
        4 with the large recent pops of Putnam of 62% and ponce de Leon of 46%
        Investors are coming back to mural conversions
        Again just my best guess

        1. In my opinion 40K seems like a stretch. For the first round (deposit holders as of 6/30/16) many depositors will get to purchase shares with as a little as 1k. It is true that they may not be able get the full 55 thousand shares but they should get some allocation. If they truly are oversubscribed in the first round, second round will be closed and those who held deposits after 6/30/16 but as of 12/31/17 will not be allowed to purchase shares in the offering.

          Agree that the pop of 60+ percent is unlikely, I would expect to see something in the range of 25 to 35% based on the geographic region the bank operates in, quality of its loan portfolio and diversification of its loan book. The volatility in the market the past few weeks can also impact the IPO, which is something investors should monitor as the IPO release date approaches.

          One other thing to keep in mind, is that this a MHC conversion and not a full IPO. In other words, this is stage 1 as only 43% of the company is being offered. If this offering goes well, the bank will have the opportunity for stage 2 and to convert fully to stock holding company. PCSB went from a MHC to SHC in its IPO so slightly different fact pattern.

          Happy investing to all!

          1. Good comments
            I was told by a fried today that there were massive lines of people dropping off their stock orders
            I hope your correct and I get my full allocation I applied for but Columbia
            is in a savvy investor area
            I have been doing this for over 20 years and certain patterns develop
            1K imo will get you very few shares on this one and I see zero chance it goes beyond first tier
            Since it’s an MHC 49 million Max shares are available if it was a standard conversion there would be about 110 million shares and better chance to get a larger allocation
            Also I do believe the pop will be close to 50% and current market conditions rarely effect the ipo pop
            My projection is that the allocation will be be a 1 for 1 meaning 1 share for each 1 dollar in your
            account . Also did you notice that almost all officers of the company applied for 55K shares a good sign and the NPA(non performing assets ) was in the .3% which is very low as it’s usually in the 1-2%
            Plus this stock will be picked up by the Russell eventually
            Let’s hope for good allocation and great pop

            1. I agree with you.

              Although I don’t know about 50% pop.
              Allocation right on.
              You seem pretty knowledgeable can I contact you.
              Do you have email?

  9. Roy,

    That’s impressive, after 20 years I’m sure you have accumulated some great returns. I agree with the insider purchases comment and the NPA stat. Interesting to hear about the lines of people dropping off their orders, I guess that supports our thoughts that it sells out in first tier.

    Any thoughts on Ridgewood Savings bank in NY? Nothing filed yet, but I could see them being a good candidate in the future. Similar size, balance sheet and geographic region as Columbia.

  10. I have been in ridgewood for many years hoping on that one
    Should be a monster and your right it is similar to Columbia
    I think that will take a really large deposit to get full allocationas it’s open to everyone and being a NY based bank it will attract every professional depositer
    Don’t know anything about their financials

  11. Just curious that how much do you need to deposit with the banks to be eligible to participate in a conversion? Does it have to be a CD or savings account? Or checking will work as well? Thanks.

    1. The perspectus usually says as little as $50 but that generally will get you very few shares
      On the larger banks going public those with a billion or more in deposits you can generally apply for 40,000 50,000 or sometimes 60,000 shares
      Remember that these banks are usually oversubscribed and shares are then allocated based upon the size of your deposits in your checking. Savings CD IRAs etc
      Also they must have been in the bank by a certain date
      Generally they go back about a year to a year and a half to be considered first tier. Which means you get first crack at the sharers
      A general rule I use is that you will need larger deposits in the banks that allow deposits outside their trading area or their state
      The majority of these S&Ls don’t allow out of state to open up but many still do
      For a point of regetence there are still about 500 banks left that have not gone public with Mass having the most
      Hope that helps

      1. This is super helpful. Thanks. I do have one follow up question. I am looking at this bank who did its mutual to stock conversion back in the 2000s via an interim stock bank that’s wholly owned by the corresponding MHC. The bank has never issued shares publicly. Does that mean the depositor is still entitled to the ownership of stocks upon future ipo and is is just 1st step? Thanks again.

  12. Good question
    Have not seen that senario before
    If it files a plan of conversion I assume you would be eligible for shares
    As for first step that depends upon if it is a standard conversion or not

    1. Recently many of the larger S&L’s have been hitting 20 and above within 1 year of their IPO date. So its not unreasonable to expect Columbia to hit that as well
      When you compare it to its peers and its balance sheet I would expect this to hit somewhere in the 21-22 range within 1 year
      but 5 years out is so hard to predict as Fed policy effects the net interest margins so much and no one can predict where interest rates will be 5 years from now
      My best guess is that its a good investment now in the mid 16’s

  13. Thanks. In 3 years will they likely sell the remaining shares to the public? If so, will the increased capital cause an increase in stock price based on the past history of similar saving and loan banks 3 years post IPO? Will they likely look to be sold to a larger bank at that time, also providing a handsome return? Understanding there is no way of knowing for certain, I’m curious what their most likely course will be based on the past actions of similarly sized banks?

  14. Hi DW

    3 years is just the time frame until by law they are allowed to sell the remaining shares, however they might do it in 5 or 10 or never. It really depends upon their need for capital for expansion usually.
    Returns I have seen on second conversions have been running between 0-15% in general because the banks are selling the remaining shares with book values over 100% where as when they go public in the first offering book values are about 70-75% so the underlying value is not as great as the first offerings
    These banks are all small by nature so they can be taken over by larger institutions but no one knows for sure

  15. No nod to Peter Lynch? Thanks for the helpful posts. I’m looking at a 50k cd and wondering if it’s worth it. I could almost move to the county, open a $100 savings account and come out ahead!

  16. I forgot to mention I had an out of state ME? account forever but when they went public they said sorry only ME people can participate!

  17. Ray I believe if you are a depositor of record to qualify for first tier then you should be offered shares commensurate with your deposit amount
    Also o don’t think any S&L from Maine has ever converted

  18. Roy. You are right on target. Part of the problem with hanging onto the shares is that they can fluctuate in value and if you get a large allocation it may be best to sell some off. You can wait a year or longer to sell more and get favorable tax treatment. PCSB was a one off. You are never going to get an allocation like that for so little on deposit in the greater NY area. I think they didn’t get past tier 1 but everyone in tier 1 got their allocation. I could be wrong. The lines were out the door at Columbia. Ridgewood may go or it may never go I think they put out some statement in the past that they were committed to the mutual structure. The allocation will be limited. Thanks so much for generously sharing your knowledge. Roy. You are obviously knowledgeable. Can I contact you?

    1. Sorry for the delay!

      After reading over the most recent press release I still think CLBK is a good buy. Loan growth was strong coupled with non performing loans ticking down. With interest rates likely to rise over the next 3- 5 years or so that will eventually help CLBKs net interest margin. As Roy mentioned in his comment, IPOs for strong banks like CLBK trade into the low 20’s 1 to 2 years post IPO which presents nice future upside from current levels.

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