Despite its August 2006 founding which came just prior to the financial crash (and right as the California real estate bubble started to burst), Bank of Napa is one of the real success stories among de novo banks of the last 15 years. It is the only local bank headquartered in Napa Valley, a region with a lot of wealthy people and successful businesses. It has a 5 star rating from Bauer Financial. It has been rated one of the best places to work by the North Bay Business Journal. It has gathered over $220 million in deposits and its 0.78% return on assets is significantly higher than banks of a similar size and age.
Yet Bank of Napa stock is trading at just $13.00 per share, or just 30% higher than shares sold for when investors initially capitalized the bank in 2016. Its market cap is just $30 million. How is a bank doing this well trading for so little? Its highly doubtful that the California investors who put up money in 2006 are happy with a 30% return over an 11 year period. Bank of Napa is a very thinly traded OTC stock and acquiring shares is extremely difficult. Short of overtures from bank management, it is unlikely that a $1B+ market cap bank is going to put much effort into acquiring BNNP. While the franchise is valuable, there is no practical way to actually buy the bank.
It’s been said in banking that CFO’s don’t always make the best presidents. They are too numbers-driven and can miss the big picture. The bank’s recently announced (5-5-2017 ex-date) dividend of $0.17 kind of fits into this. The thinking is that investors who aren’t satisfied with the return on investment should be placated with a 1.3% dividend. However, investors are unlikely to be satisfied with this small move for long. The bank should weigh its options and consider splitting its shares to bring more liquidity into the market so that investors can cash out some of their investments. It should also look at strategic options; can it scale its franchise by acquiring one or more banks? Or has it reached its full potential, and should it put itself up for sale? With a 58 year old bank president who is unlikely to put himself out of work, banks looking for smart growth in Northern California should start circling Bank of Napa and put together a friendly deal that keeps Mr. LeMasters on board in some capacity for the next 7-8 years.
Disclosure: the writer of this article owns shares of BNNP and would stand to benefit if BNNP were acquired by another bank at a premium.