BankFirst Capital Corp. (OTCQX:BFCC) - Feb 2023

BankFirst Capital is materially undervalued because ECIP-funded acquisitions should lift 2023 earnings while leaving the bank with further acquisition capacity.

• BankFirst is a Columbus, Mississippi-based bank approaching $3 billion in assets, and it received $150 million of preferred equity through the Treasury's ECIP program.
• The bank used its ECIP capital to acquire three smaller regional banks over the previous 16 months, including Mechanics Bank, whose $43.6 million of ECIP funding transferred to BankFirst at closing on January 1, 2023.
• Mechanics had roughly $30 million of tangible book value before ECIP, was earning about $3–4 million in 2022, and could have been acquired for an attractive price if BankFirst paid below the estimated $60–80 million range.
• BankFirst reported fourth-quarter earnings of $7 million, or $1.31 per share; annualizing that run rate gives $5.24 of EPS before including Mechanics' approximately $4 million of earnings and adjusting for merger costs.
• The bank's operating metrics include a 4.09% net interest margin, 1–1.2% return on assets, about 10% return on equity, a roughly 65% efficiency ratio, and an average deposit cost of only 0.2–0.3%; management owns 31.8% of the company.

Takeaway: At $41, the shares trade at about 6x the author's estimated 2023 EPS and roughly 20% below adjusted tangible book value, with potential upside from another $70–80 million acquisition or an uplisting to NASDAQ; investors must nevertheless account for recessionary credit losses, bank leverage, and limited liquidity.