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"Bullish on Community Bank Stock" - Barron's


jay21
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I was just thinking about doing some fishing for some banks that are trying to roll up community banks for cost synergies and, lo and behold, I see a Barron's article giving some names to look into.  Here are some snippets from an interview and the article title is in the thread title.

 

"we are destined to have improving and benign credit comparisons for the next several years. For surviving institutions, credit quality is now a tail wind. We consider the crisis to be over, from a credit-quality point of view"

 

"our concern is less specific to housing and mortgages and more generalized to the unintended consequences of excess liquidity and low interest rates. "

 

"the trend we are most excited about is that we see a strong likelihood of a big consolidation in the community-bank business in the U.S. The country is overbanked and overbranched. Consolidation has actually slowed down a lot since the crisis hit. So this isn't happening yet. But the regulatory response to the crisis is going to cause consolidation to pick up again as banks are now feeling increased costs and burdens of the new regulatory regime. So it is especially bad for small banks, which have seen their fixed costs lurch up but whose costs are spread over smaller asset bases."

 

http://online.barrons.com/article/SB50001424052748703591404578453060091541262.html?mod=BOL_twm_fs#articleTabs_article%3D1

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Anyone have any insights on how community banks compete with the large national banks? You would think the large banks like, ex. WFC, have a significant advantage given the cheaper cost of funding, large network and broader array of products, etc..?

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Guest wellmont

Anyone have any insights on how community banks compete with the large national banks? You would think the large banks like, ex. WFC, have a significant advantage given the cheaper cost of funding, large network and broader array of products, etc..?

 

some of them have good local franchises. but you make the case that they are going to consolidate into bigger pieces because they are disadvantaged, and as a group they are. so you are making a perverse bullish case.

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Hey all:

 

I think the EASY money has already been made in the community bank stocks.  This was one of my favorite sectors back in 2011.  You could buy stocks at 25% of book value...They were starting to turn the corner but yet were left for dead.

 

There are still bargains out there....SBFG is probably one of them.  They are trading for UNDER 8 P/E and at a discount to book.  They just raised the dividend, and I am almost sure it will be raised yet again in the upcoming 12 months.  Earnings are somewhat better than what they appear to be as they are taking amortization charges from acquisitions a few years ago.  Oh ya, almost forgot, check out the insider's activity, specifically how often & at what prices they are buying stock.  Stock is trading for $8.35.

 

A year from now, I don't think there should any reason why this is trading for less than $11/share...

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Guest wellmont

Hey all:

 

I think the EASY money has already been made in the community bank stocks.  This was one of my favorite sectors back in 2011.  You could buy stocks at 25% of book value...They were starting to turn the corner but yet were left for dead.

 

There are still bargains out there....SBFG is probably one of them.  They are trading for UNDER 8 P/E and at a discount to book.  They just raised the dividend, and I am almost sure it will be raised yet again in the upcoming 12 months.  Earnings are somewhat better than what they appear to be as they are taking amortization charges from acquisitions a few years ago.  Oh ya, almost forgot, check out the insider's activity, specifically how often & at what prices they are buying stock.  Stock is trading for $8.35.

 

A year from now, I don't think there should any reason why this is trading for less than $11/share...

 

bgvf shareholders beg to differ. I disagree that the easy money has been made. The very easy money has been made. but the easy money is still on the table. they are underperforming this year and I own scores that are making money paying dividends and selling under book. I think we are 3rd or 4th inning.

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So what banks are positioned for rolling up small banks? SNV comes to mind.

 

And what banks are positioned for being rolled up?

 

For best results, there should be a fairly significant valuation gap between the acquirer and the targets - that way acquisitions create market value through instant rerating.

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Guest wellmont

So what banks are positioned for rolling up small banks? SNV comes to mind.

 

And what banks are positioned for being rolled up?

 

For best results, there should be a fairly significant valuation gap between the acquirer and the targets - that way acquisitions create market value through instant rerating.

 

it's early in the consolidation. if you buy a $45m bank today you might be bought by an $80m bank.  down the road that bank could easily be acquired, and so on. this is what I see for somh. that's why I am invested in the smallest banks i could find.

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This is just one analysts view, but I thought I would share it with you all.

 

BANK M&A update to our M&A piece. There has been 3 deals since May (ex FDIC) totaling $67mm in deal value. This is on pace with prior months but still remains tame when compared to the chatter we heard at our Boston conf in February (everyone interested in buying…). Adding WIBC to ‘BUYERS’ list. Buyers list now includes BBT, CMA, FITB, MTB and USB.  Sellers List- AF, BBNK, BPFH, BSRR, EFSC, FFIC, FFKT, FFKY, FHN, FXCB, HAFC, LNBB, MCBI, OABC, ORIT, PBIB, SNV, STBZ, STEL, STL, TCBI, UCBI, YAVY. Despite the low volume of deals our Seller's list continues to outperform currently +11.9& YTD vs the KRX's 7.3% + our Buyer's list +6.1%.

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Demutualized banks are common targets, although that is such conventional wisdom now that it's probably not very useful.

 

Not as common as demutual investors think. The demutuals have been on an absolute tear recently.

 

Is there a way to screen for demutualizations?  I think plenty of investors (like Klarman and Einhorn) made a bundle on demutualizations in the 1990s.  The way they explained it, it seems like free money.

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Demutualized banks are common targets, although that is such conventional wisdom now that it's probably not very useful.

 

Not as common as demutual investors think. The demutuals have been on an absolute tear recently.

 

Is there a way to screen for demutualizations?  I think plenty of investors (like Klarman and Einhorn) made a bundle on demutualizations in the 1990s.  The way they explained it, it seems like free money.

 

It is like free money, but there are no screens for it. Mutuals file to demutualize, there are various news services that report this.

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One advantage that local banks have is fast decisions.  At the First National Bank of Alaska annual meeting, they pointed out they can have the loan approved in less than a week where Wells Fargo can take several weeks. They also have other community banks wanting to participate with them. They have actually started loaning local businesses for out of state projects.

 

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Demutualized banks are common targets, although that is such conventional wisdom now that it's probably not very useful.

 

Not as common as demutual investors think. The demutuals have been on an absolute tear recently.

 

Is there a way to screen for demutualizations?  I think plenty of investors (like Klarman and Einhorn) made a bundle on demutualizations in the 1990s.  The way they explained it, it seems like free money.

 

I've attached a list from '08 - '12, from late last year. I read on VIC (on the mssg board) that Peter Lynch derived a nice chunk of his outperformance from these as well.

thrift_converts.png.dc6ec996553e10dbd1ae2aeb2c4be1e9.png

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Demutualized banks are common targets, although that is such conventional wisdom now that it's probably not very useful.

 

Not as common as demutual investors think. The demutuals have been on an absolute tear recently.

 

Is there a way to screen for demutualizations?  I think plenty of investors (like Klarman and Einhorn) made a bundle on demutualizations in the 1990s.  The way they explained it, it seems like free money.

 

Read "Beat the Street" by Peter Lynch... he purchases something like 140 out of a total 145 S&L's that went public in the 90's and goes through his analysis on quite a few of them

 

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