Recent Demutualization – 40% Upside
Central Plains Bancshares is another recent bank demutualization case alongside BV Financial (BVFL).
While CPBI is less attractive than its peer BVFL due to its smaller size, lower profitability, and limited financial information, I think it is worth a brief note as one of the more interesting recent thrift conversion examples. Although it may not warrant more extensive analysis at this time, it will serve as another reference point for tracking the performance of newly converted banks.
Central Plains Bancshares is a holding company for Home Federal Bank, which operates 6 branches in Nebraska. The company has completed the standard thrift conversion one month ago raising $41m in gross proceeds (should probably be around $35-$37m net). Post-conversion financials are not yet available and, overall, available financials are pretty much limited to the prospectus and two recent quarters (here and here). The bank had $450m of assets and $38.7m book value as of September (pre-conversion).
CPBI trades at 0.5x TBV and 10.5x PE on run-rate earnings. ROE has been somewhat volatile with 8% in FY21 (ending March’22), 4.4% in FY22 and 10% in the last two quarters. Assuming the newly raised cash will be deployed at 8% profitability, the PE multiple would drop below 6x. According to Mercer Capital’s Bank Watch (October edition), Midwest peers are trading at 0.93x TBV and 8x forward earnings. If CPBI share price was to re-rate to those levels, potential upside would be north of 40%.
Other points on CPBI:
- CPBI focuses mostly on residential real estate loans (41% of portfolio), commercial real estate loans (30%) and commercial non-RE loans (9%). Majority of the portfolio is secured by RE assets. Over 50% of the loan portfolio is fixed rate.
- Deposits have been growing this year. Net interest margin has so far been in line with 2021 levels.
- Securities portfolio is miniscule and nonaccrual loans are at 0.16% of the total loan portfolio.
- The bank is overcapitalized and CET1 ratio stood at 12% prior to the conversion.
- Efficiency ratio is at around 70%.
- Management owns 6.9% stake and has invested $1.9m in the IPO.