Munger Disciple

BREAKING: DC Circuit Court Affirms Net Worth Sweep Breached the GSEs' Duty of Good Faith and Fair Dealing. MY READ THROUGH: In any GSE Recap/Release, Treasury Must Cancel its Senior Preferred Stock, by @RuleofLawGuy1 open.substack.com/pub/ruleoflawg… $fnma $fmcc

$FNMA $FMCC Priced In

@HalvioCapital What does $PDLB look like?

Trying to think through this $MFBP buyout and put some crude math together on some of the other ECIP banks. Mechanic is being bought out for about $103m once the preferred is redeemed. $MFBP alluded to when they can repurchase their preferred in their 2025 annual report:

@RatelCapital1 Fire away

@youngermunger7 hi - thank you. do you mind if I DM you some questions?

@matthewhcullen @dirtcheapstocks Would warm my heart too.

@youngermunger7 @dirtcheapstocks I think $PDLB redeems and wants to have "life after ECIP" but a takeout would warm my heart.

4 years ago I wrote about a tiny group of banks that were gifted cash far in excess of their market caps. The U.S. Treasury "invested" in certain small banks. Their "investment" was in the form of noncumulative, perpetual preferred stock with a max rate of 2%. What does that mean? Government gives you $100m, you pay them $2m per year, unless you can't afford to pay the $2m, in which case it's just deleted from the ledger. You miss a $2m payment? No problem. Next year's payment is still only $2m, and you never pay back the $100m . You realize pretty quickly this is just a gift from Uncle Sam. Anyway, One consistently profitable little bank in Durham had a market cap of $14m back then. It had received an $80m "investment" from Treasury. It was like buying a home for $500k and finding $2.8m sitting in the basement. All the information was publicly available for someone willing to dig. Today that bank was acquired for $105m! 70% CAGR over 4 years while owning one of the most liquid, overcapitalized banks in America. Crazy things happen in public markets. Not investment advice.

@polarcalorie Spend my life looking for stuff like this :)

@youngermunger7 how did you find this idea? it's very creative

Fellow investors: $NFBK and $CLBK look like highly asymmetric bets. Northfield Bank (NFBK) and Columbia Financial (CLBK) are New Jersey-based community banks that provide traditional banking services to local consumers and businesses. In the next few days, CLBK is set to close on its acquisition of NFBK. CLBK will fund the acquisition with proceeds from a ‘second-step’ IPO. CLBK is already partially public. It will now become fully public. The market today values both companies as little more than merger arbs. NFBK remains anchored to its takeout price ($14.50/sh at the midpoint), while CLBK, adjusting for the stock split, trades essentially in line. What that misses is that both NFBK and CLBK offer investors the opportunity to purchase pre-IPO shares of the combined company at an extraordinarily low valuation — one that is difficult to reconcile with the quality, scale, and earnings power of the business. On a pro forma basis, CLBK will be a ~$20bn in assets institution earning solid returns (1.1% ROA / 10.5% ROE) on a very high quality loan book (0.1% NCOs/Loans). The market today is offering us that for less than the company’s liquidation price — roughly 0.9x of TBV. For context, few banks of CLBK’s size have traded at such a valuation in the past two decades. Peers reached that level only in 2011 amid the Great Financial Crisis and 2023 amid SVB bankruptcy. Today, even worse-performing regional peers such as OCFC trade at 1.0x. Banks with similar profitability metrics trade at 1.4x to 1.8x, roughly +90% higher than today’s valuation. See below for a comps sheet. CLBK sticks out like a sore thumb. You can also make a strong case that the combined company should trade at a healthy premium to peers. The loan book has been among the cleanest in the peer group for well over a decade. Earnings growth should also well outpace peers as excess IPO capital is deployed into loans and share repurchases. And at roughly $20 billion in assets, the combined bank will be 40% larger than peers, bringing greater scale, operating leverage, and trading liquidity. All of that suggests a premium, not a discount. Why are these stocks trading here? One, it’s the complexity. This is a second-step IPO plus transformational M&A wrapped into one — not easy to analyze. Two, investors screening for banks are still looking at pre-deal metrics. After acquisition-related cost saves, the bank will comp more closely to peers at nearly double the valuation. Three, management and bankers need to set a valuation that incentivizes participation in the offering. Four, merger arb funds likely anchor to the proposed takeout price, overlooking the underlying economics of the business. Finally, the market still seems to ascribe CLBK a minority discount. That made sense with a 27% float and MHC structure, but the discount goes away entirely post-IPO. In short, the market seems to be looking backward when it should be looking forward. And what if the shares do nothing? Management will continue buying back stock. At a healthy discount to TBV, repurchases will be accretive to book, further exposing the valuation gap. Also important, unlike in many other conversions, IPO proceeds will not sit idly by on the balance sheet depressing ROE, as the company intends to allocate some of the proceeds immediately to the acquisition. Management projects +50% EPS accretion, putting pro forma valuation at ~10x 2027 EPS. Peers trade at similar or higher multiples despite having far less excess capital to drive EPS expansion. Altogether, NFBK and CLBK seem very asymmetric. I think we will look back and scratch our heads on why they’re trading here. P.S. This is somewhat complex. Feel free to reach out with questions. Disclosure: Long CLBK/NFBK. Not financial advice. Do your own due diligence. @dirtcheapbanks @alluvialcapital @PhilTimyan @thebankzhar @leevalueroach @blondesnmoney

@ElDawg360 I don’t disagree. There will be some flippers. Helps that $270m in shares traded hands today. Offering was only $1.7bn.

@youngermunger7 Probably going to be a heavy weight tilting to $10 for a while as people flip their new shares at a profit and having to wait 12 months to start buybacks.

@kovainvest Peers w comparable metrics trade 80-90% higher

$CLBK still 50% upside from here 我这周加仓的股票之一

@dirtcheapbanks Shore is nice tho

Just arrived at the community bank investor conference (we are all on the shore watching yachts owned by execs at big banks)

@blondesnmoney @alluvialcapital @PhilTimyan @eriksen_tim @TheLazyBeavers @SSI_invest @leevalueroach @dirtcheapbanks @dirtcheapstocks

@PhosphitesP That is exactly it. But SRBK is a tiny bank. This one has the scale to attract institutional capital.

@youngermunger7 This one reminds me of a better scale SRBK. They did that one and because of the complex convert /merge people were confused and initially it went under the $10 until they started the buy back - then the value was too hard to ignore.

@batman10023 Roughly equal. With NFBK you’ll get hit w a taxable dividend, so CLBK might be better even though it’s a bit more expensive.

@youngermunger7 Which is better to buy? This week prior to deal.

@mwphnh @michaeljburry Do some merger math first. Then come back to me.

@youngermunger7 @michaeljburry Your assumptions are extremely optimistic on roe and rotce

@mwphnh That’s the beauty of cost saves. And that’s why the banks are trading where they are in the first place and why this opportunity exists. The future does not look like the present.

@youngermunger7 The $clbk 1.1roa may be a wet dream. Neither clbk nor nfld ever came close to those numbers.

@tsquared430 @hank_moody_jr Yeah, they’re roughly equal. With CLBK you don’t get hit w dividend tho.

@hank_moody_jr @youngermunger7 Makes more sense to be long both since it is only 30% cash, the 70% stock portion is converted into CLBK shares

@browniecheck @dirtcheapbanks Hey, good q. ROA and P/B are most important for new conversions bc TCE influx so great from IPO proceeds. ROE there is more pro forma / where they’ll get to in next couple years as IPO capital deployed. Agree will take some time.

@youngermunger7 @dirtcheapbanks How do you get to 10.5% ROE on 1.06% ROA and 16.7% TCE?

Great analysis here. Seems like a layup to me. Also a pretty good analyst. Criminally under followed.