Friday, November 15, 2019

Ben Franklin Financial: Tiny Bank Merger and Liquidation

Ben Franklin Financial (BFFI) is a tiny (sub $10MM market cap) two branch community bank located in the northwest Chicago suburb of Arlington Heights that completed its second step mutual-to-stock conversion in 2015.  Ben Franklin Financial is a pretty straight forward community bank, it takes in deposits from a small local radius and primarily turns around and makes a mix of residential mortgages and commercial loans.  At just under $100 million in assets, Ben Franklin Financial is sub-scale, poorly managed and as a result loss making bank (to pile on, BFFI was also operating under an OCC consent order until this past February) that caught the attention of community bank activist Joseph Stilwell who encouraged the company to pursue shareholder friendly actions like repurchasing shares or pursuing a sale.  In July, the company announced a unique sale transaction with Illinois based Corporate America Family Credit Union ("CAFCU") for between $10.33 and $10.70 for shareholders, the stock bounces between $9.60 and $9.80 today.  Why sell to a credit union?  Since a credit union is technically non-profit, they might be willing to pay more for a struggling operation like BFFI since they just need to cover their operating costs.  The credit union buying a bank thing is a recent trend but this is a first of its kind transaction where the credit union is purchasing a bank that converted from a mutual holding company.  The catch being there is some uncertainty as to how depositors who did not participate in the mutual conversion process will be treated in the liquidation and other uncertainties like terminating employee benefit plans.  Not only is the amount uncertain, but the timing is as well, the transaction with CAFCU is expected to close in early 2020 with the distribution to shareholders occurring "within several months", thus this is more of a two step process, an asset sale and then a liquidation rather than a clean merger.

Assuming a 5/15/2020 payment date (call it 4 months after an early 2020 transaction settlement) and I get an IRR of between 12% and 20% off of the last trade at $9.75 or gross returns between 6% and 10%.
Maybe I'm underestimating the possibility of the deal breaking but I think you're getting paid for the illiquidity of a nano cap and the uncertainty of both the ultimate payout and timing, both risks that a small personal account like mine is well suited to take.

Disclosure: I own shares of BFFI


  1. Proxy came in the mail, range was reduced to $10.09-$10.58. Special meeting scheduled for 2/18, bank sale scheduled to close end of Q1 with another 3 months to liquidate.

    1. Did the meeting happen without a hitch, and has their been any further revision down in the payout range? Pricing over past week getting a bit silly if it's still due to payout no less than $10.09 within next few months. Someone scooped up some shares sub $8 earlier today.

    2. I've received nothing in the mail - I was kind of forced to sell this one, got lucky and got out around $10, needed the liquidity. I assume everything went off without a hitch, but who knows right now.

    3. Hello,

      Thank you for the write up. I understand you sold to invest elsewhere, but I wonder if you have an opinion whether this sentence indicates sharing of the proceeds with the depositors?

      "The Company also received confirmation that the organization’s liquidation account must be paid out to certain holders of liquidation account rights in the transaction"

    4. Sounds like it does, I don't remember if the $10.09 low end included that or not and my paper proxy statement I left in my office.