Eastern Michigan Financial Corporation (EFIN)

Liquidity/size disclaimer (sorry): this name is illiquid, boring, and unlikely to fit anything but a retail position size. But I like the bank so I’m going to write it up.

Eastern Michigan Financial Corporation (EFIN) is based out of Croswell, MI and its bank subsidiary Eastern Michigan Bank currently operates nine banking offices and a loan production center, primarily in the Sanilac and St. Clair County, Michigan communities (northeast of Detroit).  Originally chartered as the State Bank of Croswell in 1895, Eastern Michigan Bank continues to service the region with a broad range of deposit services as well as loans for commercial and consumer purposes. Shares of EFIN currently provide a nice entry point to invest alongside a capable management team operating a highly-capitalized bank positioned to deliver attractive compounded ROE to its shareholders.

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Tri City Bankshares (TRCY)

Alright, another bank idea to close out the week. If I do many more banks like ENB Financial and the following franchise, I may have to launch a “Ron Popeil Strategy” on this site.

I’ll put the disclaimer upfront: this name is illiquid, boring, and unlikely to fit anything but a retail position size. And I like it.

Back in 1955, small businessman David Ulrich’s loan application was turned down by a local lender. To remedy the issue, Mr. Ulrich decided to start his own bank and spent the next eight years raising capital in in order to establish Tri City National Bank in 1963. As it stands today, Tri City Bankshares (TRCY) of Oak Creek, WI still operates as Tri City National Bank and services Southeast Wisconsin with a 33 branch network.

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Why Digging In Matters

A little change of pace today with a quick post on why one needs to dig deeper than Capitalization, ROE, P/E. and TBV when analyzing small community banks.

As the first step in looking for investment opportunities, I run a couple screeners on community banks with varying thresholds on capital metrics, income metrics, asset quality/mix, and deposit quality/mix. My hurdles tend to be high and typical return a more conservative mix of bank franchises. But one still needs to dig deeper and look at bank-specific disclosures prior to targeting a company for an investment opportunity.

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Orrstown Financial Services (ORRF)

Orrstown Financial Services (ORRF), the bank-holding company for Orrstown Bank, operates 32 locations throughout Pennsylvania and Maryland with total assets of approximately $1.9 Billion. Founded in 1919, the Bank has operated continuously since it was established by a group of community leaders in Orrstown, PA. Today, Orrstown Bank is headquartered in Shippensburg, Pennsylvania and continues to provide a full range of consumer, business, and wealth management services.

Contrary to most of the banks profiled here at Golden Belt, Orrstown had a rough couple years coming out of the financial crisis. Over a two year period in 2011-2012, Orrstown posted nearly $70 million of net losses, necessitating formal enforcement actions in March 2012 that were ultimately lifted in April 2015. Prior and during the crisis and subsequent enforcement period, key personnel was put in place (Tom Quinn took CEO helm in 2009; new Chief Financial Officer and new Chief Risk Officer in 2012) and the management team laid the foundation for a long-term growth plan. Significant investments in enterprise risk, credit administration, and technology were put in place and serve as pillars for today’s growth. Management is actively looking to expand the Bank’s footprint in its key markets, with a focus on driving shareholder value.

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Portfolio Summary

Portfolio Summary: this post will turn into the one-stop page (I’ll add to site header) incorporating each company I’ve highlighted as an investment idea. I will do my best to update these screens on a regular basis; the portfolio positions and returns monthly and the company data on the calendar quarters, as updated/disclosed by each company.

Current views are posted as-of 1/23/2019.



PDF versions:

gbb port data _ jan 24 2019

gbb bank data _ jan 24 2019

Southern First Bancshares (SFST)

Southern First Bancshares, Inc. (SFST), headquartered in Greenville, SC, is the holding company for Southern First Bank, the third-largest bank headquartered in South Carolina. Relative to the other companies highlighted on this blog, Southern First is a relative baby; it was founded in 1999 and now operates a 11-branch network in several attractive markets in the southeast (Greenville/Columbia/Charleston SC; Raleigh, NC; Atlanta, GA).

As of six months ago, there was one major reason I didn’t think Southern First would have any chance of showing up on my screens: valuation. In June 2018, shares of SFST were trading a ~220% TBV and ~22x TTM EPS. No matter how attractive a bank franchise may be, the math just never works if you are trying to justify a 200%+ TBV valuation is a good setup/entry for a long-term investment.

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Auburn National Bancorporation (AUBN)

Auburn National Bancorporation (AUBN), the bank-holding company for AuburnBank, operates 9 branch locations in southeast Alabama with total assets of approximately $800 million. Founded in 1907, the Bank has operated continuously since it was established as the first financial institution in Auburn, Alabama. AuburnBank is community oriented and focuses primarily on offering commercial and consumer loan and deposit services to individuals, and small and middle market businesses.

AUBN had an interesting year in 2018: balance sheet growth was nonexistent, profitability improved, and the stock traded from $35 to $55 and back to $30. In June 2018, AUBN was added to the Russell 2000 Index — which can be a challenge for a stock that doesn’t have more than 4,000 shares trade on a typical day. The share price of AUBN had a version of a melt-up in June as it moved from ~$42 to ~$55 over the course of the month as the Russell rebalancing flows impacted the stock. Since then, the stock has sold off by nearly 35% (it was worse in December…) as the entire banking sector has traded lower and, I’d argue, selling in the Russell-linked funds put additional pressure on AUBN.

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