This article is the third of a series of deep dives into promising mutual savings conversions. I wrote a quick overview of mutual savings conversions and listed out some interesting names in previous articles.
Today we get a chance to invest in a mutual savings conversion at its post-conversion price.
This means we get to participate in all the upside from here.
It also means we may need to wait a few years to receive it.
This is a simple setup. Let’s take a quick look at the key factors.
The Business
Community Savings Bank (CSBA) was founded in 1889 as Bethel Building & Loan in Bethel, Ohio. It assumed its current name in 2010 and converted to a stock-owned community bank on July 30th, 2026.
The balance sheet is as rock solid as you’d expect. The equity/asset ratio is 17.5%. Credit losses are negligible.
The bank makes a small profit despite its cash-heavy balance sheet. ROE is 3.35% after stripping out the excess cash — and trending in the right direction.
As is typical in these situations, management owns 14.5% of the bank and is therefore incentivized to be a good steward of shareholders’ capital.
It also has a decent record of value creation, or more precisely of lack of value destruction, which is generally what we are looking for here.
The Value
Valuation is the highlight of this opportunity. CSBA trades at 0.68x its tangible book value.
This means we’d expect a larger bank to pay about 50% more than the current $12.65/share to acquire CSBA.
This will take a while though.
The Catalyst
The catalyst is some way away.
Its M&A window opens in 36 months. It just converted into a mutual savings company less than two weeks ago. Even though there is a very likely acquirer in the area, mutual savings post-conversion rules mean a sale cannot occur for another three years.
There aren’t any confirmed activists involved. They may be buying as we speak, but there is no way to know until they file one of the few forms that let us know they are here.
Even if it wanted to, management is not allowed to buy back shares for another year. This is a standard restriction for mutual savings conversions.
In other words, there is no guarantee there will be any share price re-rating any time soon.
The Risks
Interest rates could go up. This would make the mortgage portfolio less valuable, and mortgages account for about 40% of CSB’s portfolio.
The acquired portfolio could underperform. 18.7% of loans are purchased unsecured consumer loans and 4.7% are purchased C&I (commercial and industrial) loans. The originator is BHG financial. This is a non-bank originator that has been around for 25 years and has done business with 1,000+ small banks, not a fly-by-night. The performance of the acquired portfolio is nevertheless still untested, and unsecured personal loans are a riskier credit class than single-family mortgages.
Management hasn’t shown its hand. Insider purchases, acquisitive behavior, attitude towards buybacks, engagement with activists… None of these signals can be observed yet.
Because it’s so early in the post-conversion journey, we don’t have many clues regarding management’s future behavior. Will it help or hinder us?
The Verdict
If we have to wait for four years to get paid and nothing goes terribly wrong in the interim, given the positive ROE and assuming no buybacks, we’d be looking at a 12-14% IRR (internal rate of return).
I know it feels like everyone and their cousin is making 20% returns these days, but 12-14% IRR with very low risk is attractive.
In many ways, this is similar to the Catalyst Bancorp opportunity, except that in this case, you get a weaker ROE in exchange for a more attractive valuation. And just like then, what to do depends on your investment goals and profile.
Personally, if the bank stays at this valuation, I would consider parking some cash in it until I can find something better.
For instance, we may be able to find a similarly cheap bank with strong catalysts in place, like Fifth District Bancorp.
I will make sure to let my subscribers know when I do.
In the meantime, happy hunting!
The Lynx Investor is for informational and educational purposes only. Nothing published here constitutes financial advice or a recommendation to buy or sell any security. I am not a registered investment advisor. Always do your own research and consult a licensed financial professional before making investment decisions. I may hold positions in securities discussed.
Prices or financials may have changed between the time of writing and the time of article publication.
The Lynx Investor is also a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.