Pair of cheap thrift conversions

Thrift (or mutual) conversions are perhaps widely known in the value investing community as popularized by Seth Klarman’s Margin of Safety, though I still don’t see much discussion on them. These are as exciting as watching paint dry, maybe that has something to do with it.

Here’s a very good post outlining the basics of a thrift conversion. Essentially, it’s a small bank IPO without the selling shareholders, proceeds from the capital raise are tacked on to existing equity and all shareholders benefit; this leaves the post-conversion bank with significant excess capital to deploy. We’ll refer to these as both thrift conversions and mutual conversions.

These 2 thrifts are at very different phases of their post-conversion lifecycle —

• The first stock completed their conversion many years ago and spent nearly their entire pool of excess capital, now becoming “just a bank.”

• The second stock is a recent conversion and sitting on quite possibly the most overcapitalized balance sheet in the small cap financial space.

Both investments are General positions with a 2-3 year time horizon. They are cheap, have excellent balance sheets, and should trade independent of the overall market.