Despite all the news and press about big financial institutions being too big for the U.S. financial system, consolidation in the banking industry still remains the name of the game -- particularly for the regional banks.
Dodd-Frank was primarily intended to provide greater oversight on the biggest financial firms. There is an irony of Dodd-Frank. It was primarily intended to provide greater oversight on the biggest financial firms. But a by-product has been to make the environment difficult for the really small banks to operate efficiently.
The small banks look to get acquired and become part of bigger organizations. This is especially true when it comes to community banks, which are excellent fits for regional banks. Community banks are often over-capitalized relative to even today's tougher banking industry standards.
As of Dec. 31, 2014, Hamilton had net equity of $60 million compared to total assets of $288 million. The equity ratio is over 20%.
To put that into perspective, an equity ratio of 10% is considered very strong in banking. Wells Fargo (WFC) has an equity ratio of around 10%. US Bancorp (USB), another high quality bank, has an equity ratio of about 13%.
Hamilton, however, has a very low return on equity and return on assets. The balance sheet shows more than $220 million in deposits and $156 million in loans.
A small regional bank looking to grow its asset base to fund loan growth would find Hamilton to be a hidden gem. A thrift that was converted to a public company, Hamilton has to wait three years before it can be acquired. The three-year anniversary occurs in October of this year.
HomeTrust Bancshares (HTBI) is a $300 million bank trading at 85% of book value. The company is based in Asheville, N.C., and has 34 offices in North Carolina, South Carolina, and Tennessee. That is a very attractive layout for a regional southern bank.
The balance sheet is very well-capitalized with over $350 million in tangible assets supporting $2.6 billion in assets. Other names that will become acquisition eligible this year include Meetinghouse Bancorp (MTGB) and Polonia Bancorp (PBCP). Both are incredibly small and would be easy to swallow by other banks looking to consolidate.
While there may be banks that are "too big to fail," there are some very small banks that I think are ultimately "too small to grow" as stand-alone entities. With bigger banks sitting on a lot of capital with nothing attractive to do, consolidating these small fragmented banks could be a very appealing strategy.
Please note that due to factors including low markebancorp and capitalization and/or insufficient public float, we consider Meetinghouse Bancorp, Polonia and HomeTrust BancShares to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.