Exactly one year ago today, I posted about Hibernia Bancorp. Yesterday, the company announced it will be bought by Union Savings and Loan Association for $32.00 in cash.
Hibernia was one of the very few banks out there that was still trading below 80% of book value (up until yesterday). In my post I speculated that the bank was likely to be sold at some point because of the lack of scale of the bank, the advanced age of the insiders, the high insider ownership and an overly conservative balance sheet and loan book. I’m happy that the announcement of the sale took just a year from the date of that post, although I have owned the stock for a bit longer than that.
At $32.00 per share, the company is being sold for 1.30x book value. HIBE was never going to fetch a high multiple, due to their low earnings and lots of excess capital on their balance sheet. The downside protection seemed strong though, with a very strong balance sheet, almost no non-performing assets and a valuation that was already quite low. It seemed unlikely that HIBE would drop to 0.5x book or something in the next bear market. That’s why I am attracted to some of these cheap, small community banks: you’re unlikely to lose much, while you do have exposure to the upside from a possible buyout by a larger bank. After CUMD earlier this year, HIBE is now the second bank from my small basket of banks that is being bought. That’s a pretty lucky result.
I’m not sure if I’ll be able to reinvest the proceeds. I’m not a knowledgeable bank investor and I’ve stuck to some simple rules to try to keep me out of trouble. One of those rules was that I was looking for banks that sell below 0.8x book value. Those opportunities have now almost disappeared. I have made one or two exceptions to this rule in my basket, but I’m not going to make that a habit. So the community bank basket will likely become smaller over time, even though it was never a very large part of my overall portfolio.
There is still 3.2% upside in HIBE from the current share price. The deal is expected to close in the second quarter of 2018. I might sell, because I don’t think the spread is particularly attractive.
Disclosure: long HIBE, no position in CUMD.