Quick note from an article on SNL today that confirms my priors (just being honest…), and I thought it to be worth sharing as low beta, core deposit funding is a key component I look for in the majority of my community bank investments. From SNL (emphasis mine):
“Matt Kennedy, vice president at investment bank Banks Street Partners, said in an interview that a strong deposit base has move up acquirer wish lists of late. He said lower funding costs attract more potential buyers and thus drives deal prices higher. ‘The conversations when we talk to these acquirers have centered and focused on deposits and the deposit base more over the past two or three quarters than they did previously,’ he said.
Buyers are also increasingly seeking targets with lower loan-to-deposit ratios, Kennedy said, as acquirers want to take that deposit base and use it as a funding source for future loan growth.”
Source: https://www.snl.com/interactivex/article.aspx?KPLT=7&id=46002260 ($)
The current valuation of BankFinancial Corp (BFIN) provides an attractive entry point to invest in a bank franchise nicely positioned in an acquisitive market geography with several balance sheet and operating characteristics that should benefit BFIN as a standalone enterprise and attract takeout offers.
Management has been busy over the past three years in right-sizing the equity position via share repurchases (3,085,168 at cost of $42,494,000) and dividends ($16.5 million) since Jan 1, 2015. As a result, we are starting to see what a ‘normalized’ return on equity looks like for BFIN. Benefitting from the lower tax rate, declining equity base, and increasing net income, ROE hit 9.4% in Q2 2018 and I don’t see any reason that management cannot continue hit a ~10% ROE over the rest of the current cycle.
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Brace yourself as I introduce Croghan Bancshares (CHBH), a boring brick-and-mortar bank franchise operating in Ohio around Toledo and Sandusky with approximately $850 million total assets.
What Croghan lacks in glitz and glamour (and market liquidity…), it more than makes up for by producing superb operating profitability and delivering shareholder returns. The bank’s profitability metrics (ROA/ROE, see “Financial Overview” section) are nothing short of spectacular.
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The current valuation of Middlefield Banc Corp (MBCN) provides an attractive entry point to invest alongside a premier management team operating a well-capitalized, conservative community bank with growth and takeout potential. Primary drivers that should benefit MBCN shareholders over the near- and longer-term:
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