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fishwithwings

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    Banks with MHC structure?

    in General Discussion

    Posted

    Farbelow:

     

    I think the confusing is coming from thinking in percentages, I prefer to avoid that.  Think of it like this.

     

    Bank has issued 1,000 shares, 40% public and 60% to the MHC.  The market tends to value these things on the full shares, even though only 40% are public.  The problem is these are strange structures that most of the market doesn't understand.

     

    What you have is a bit of a bonus because if the bank conducts a second step they'll IPO the 60% and raise additional capital.  As a shareholder you'll be able to participate in the IPO and add at usually attractive prices.  If you don't add to your stake you still benefit, post-transaction you own 40% of an institution with more capital.  The ownership percentage doesn't change.  So 40% of 100 in capital before, and 40% of 160 in capital after the transaction.

     

    Second steps don't tend to do as well as full conversions.  These are strange hybrids that regulators are trying to extinguish.  I'd be surprised if there are any more MHC's created.  All mutuals are being encouraged to fully convert at this point.

     

    Nate,

    Do you know how the second step shares are priced?

    Thanks

    Banks with MHC structure?

    in General Discussion

    Posted

    I've owned PBHC from that list, but sold it recently.

     

    I stick to a few rules for investing in community banks to protect myself since I'm not a competent bank analyst. MSVB has 4.0% non-perfoming assets which is too high for me, I don't touch banks with NPA's > 3%.

     

    One bank with a MHC structure that I like and still own is Gouverneur Bancorp (OTCMKTS:GOVB). The company doesn't post annual reports on its website, but you can piece things together from their press releases on OTCMarkets and old SEC-filings from when they were still a reporting company. If you own shares you should receive future annual reports and proxy statements. The stock is very illiquid, but that doesn't bother me.

     

    Here's some data about GOVB:

     

    Market cap: $30.4 million

    Shares outstanding: 2,223,931

    MHC ("Cambray MHC") owns 1,311,222 shares or 58.96% of the shares outstanding

    Adjusted market cap: $12.5 million

    Shareholders' equity March 30, 2015: $28.3 million

     

    GOVB's return on assets has been greater than 1% since 2010. Their NPA's have been below 3% in this period. Their equity to assets ratio was 19% at the end of 2014.

     

    I've bought GOVB some time ago when the stock was trading around $10. At that point I think it was trading below book value even without adjusting the market cap for the MHC shares. I figured it was worth a bet, even though I still didn't (and don't) understand many things about investing in this space and how to think about valuation for banks with a MHC structure.

     

    Thanks for the idea.  I've sent an email to the company requesting the financials.

     

    I've put together an excel sheet of a few banks with the MHC structure.  If you or anyone would like a copy/want to discuss, send me a PM.

     

    Banks with MHC structure?

    in General Discussion

    Posted

    BeyondProxy had an article in 2014 that listed a bunch: http://www.beyondproxy.com/sifting-thrifts/

     

    I've looked at a number of these and also found some other ones. What I've found is that they seem to trade in line with other small community banks without a MHC structure. The partially converted thrifts don't seem to get a higher price-to-book multiple by the market. If you adjust the market cap for the true number of outstanding shares some of them are trading at huge discounts.

     

    My question is why that is and whether it is justified. Is it because this is a completely overlooked part of the market? Is it also somewhat justified because there is no way to know when a second step conversion will occur and your investment is more or less "dead money" in the meantime? I also thought directors might have an incentive not to convert, because they probably control the votes of the MHC shares and will be in control of the entire company as long as they control those shares. If they convert, bank activists could show up and threaten their position.

     

    Does this make sense? Are there other reasons? Community banks and MHC's are still unfamiliar territory for me and I'm trying to understand it a little better.

     

    I took a look at the list on beyond proxy's website and spent a few hours reviewing the six "highlighted opportunities."  IMO they are more attractive than the general market, however most of these shares with the exception of MSVB are not "deeply" undervalued (i.e. 40-50% discount).  As for MSVB the shares are illiquid and its tough to purchase a material position.  Thoughts?

    Biggest regrets of the older posters here?

    in General Discussion

    Posted

    Biggest regret (investing-wise): spending too much time on stuff like this thread (and other distractions) and too little time on actually valuing obscure companies.

     

    I feel like i'm making the same mistake... However, on the flip-side, I have found great ideas on the forums and websites....  A few ideas have generated 50%+ returns.

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