Bonhoeffer Capital Management, an asset management company, released its fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. Bonhoeffer Fund shifted slower-growing companies, throughout 2023 to robust, growing companies in temporary down-turning industries. In the current year, the fund is still looking for chances of this nature. The fund returned 12.9% net of fees in the fourth quarter of 2023 and 17.0% for 2023 overall. The MSCI World ex-US, a broad-based index, returned 9.8%, and the DFA International Small Cap Value Fund, the closest benchmark, returned 9.3% during the same period. The fund’s portfolio holds the highest-quality businesses in the fund’s history. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Bonhoeffer Capital Management featured stocks such as Northeast Bank (NASDAQ:NBN) in the fourth quarter 2023 investor letter. Headquartered in Portland, Maine, Northeast Bank (NASDAQ:NBN) offers banking services to individual and corporate customers. On February 14, 2024, Northeast Bank (NASDAQ:NBN) stock closed at $53.25 per share. One-month return of Northeast Bank (NASDAQ:NBN) was 2.34%, and its shares gained 17.91% of their value over the last 52 weeks. Northeast Bank (NASDAQ:NBN) has a market capitalization of $415.22 million.
Bonhoeffer Capital Management stated the following regarding Northeast Bank (NASDAQ:NBN) in its fourth quarter 2023 investor letter:
“There were modest changes within the portfolio in the fourth quarter, which are in line with our low historical turnover rates. We sold some of our slower-growing investments and invested some of our cash into three specialty financial services firms, FFB Bancorp, Northeast Bank and United Bank of Alabama, described below.
The third is Northeast Bank (NASDAQ:NBN), an originator and purchaser of third-party loans from the FDIC. Currently, NBN’s loan book is about 30% originated and 70% purchased loans. NBN was a bidder but did not win the bid for Signature Bank’s or Silicon Valley Bank’s loans. Richard Wayne, the CEO of NBN, founded Capital Crossing Bank in 1998 with a similar operating model of originating and purchasing loans from the FDIC in the 1990s and 2000s. Between the time of Capital Crossing Bank’s IPO (1997) to its sale to Lehman Brothers (2007), the bank returned 22% annually. In 2010, Richard became CEO of NBN and is running a similar playbook and has generated great returns thus far. The current Q1 FY2024 RoE is 20%. NBN has a fast-growing high yielding loan book (24% per year over the last five years) driven by FDIC loan purchases with a market interest level deposit base (3.9% cost of funds). NBN deposit growth has also increased by 15% per year. In 2022, NBN had to raise $50 million in equity capital to support this loan growth. NBN’s loan book’s largest collateral types are multi-family and retail with a weighted average loan to value of 47%. Most of NBN’s loans have personal guarantees. NBN has a good underwriting process which has generated, as of Q1 FY2024, NPAs of 0.6% with corresponding loan loss reserves of 1.0% and criticized loans of 1.3% (impaired loans and loans on a watch list). NBN’s current net interest margin is 5.3%. NBN’s efficiency is above average at 41% for Q1 FY2024…
A leading KPI for banking is return on equity. Given NBN’s net interest margin of 5.3%, non-interest income of 5%, efficiency ratio of 41%, tax rate of 27%, and leverage of 8.5x, the resulting return on equity is 20% (20% = 5.3%*(1.05)*(1-0.41)*(1-0.27)*8.5). NBN has a modest P/E of 8.1x 2023 earnings. The key to generating these returns is finding creditworthy customers to finance, continued purchasing of FDIC and merger-related divested loans and continued efficient operations. Management compensation is in check (14% of net income) and incentive compensation is based upon pre-tax earnings targets for the cash bonus and achieving return on asset thresholds for the stock-based compensation. Management holds about 15% of shares outstanding with CEO holding 9%. 1.3% of shares per year have been issued as performance based restricted stock over the past 3 years.”
A financial advisor in a suit, pen in hand, talking to a client in the bank.
Northeast Bank (NASDAQ:NBN) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held Northeast Bank (NASDAQ:NBN) at the end of third quarter which was 5 in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
