Community 1st Bank Fits The Bill For A Takeout

| About: Community 1st (CFBN)

Community 1st (OTCPK:CFBN) is a two bank branch located in Roseville, CA. with a tangible book value of over $3.50. Lately banks of this size, realizing they cannot compete in today's costly regulatory environment, have chosen to merge. CFBN fits the bill. My financial services fund took a position in the bank through an offering several months ago. I flew down to Reno to meet the CEO Mark Lund and was impressed by the quality of the deposits, the franchise value, and the open ended growth prospects. My investment philosophy was, hold the bank for 2 years and it would be an easy double on a sale.

Unfortunately Mark had other plans and last month he left the bank. While I was temporally disappointed, I noticed that Robert Haydon (the Chairman) had decided not to hire another CEO and to temporally take the position himself. Robert is a senor bank executive in his 60s who started this bank.

My Haydon, in my opinion, has no plan to grow the assets of the institution, instead I believe he quickly sells the bank. I would not be surprised to see FIG partners hired to explore strategic alternatives.

It is an attractive franchise to three larger institutions. In my opinion they all have an interest.

American River (NASDAQ:AMRB), Trico Bankshares (NASDAQ:TCBK), and North Valley Bancorp (NASDAQ:NOVB).

I have met with the managements of these banks and came away with the opinion that they are looking to grow their franchises with in-market acquisitions of quality deposits. CFBN definitely fits the bill.

So who makes the sale happen? The Board of CFBN is composed of Greg Gersack (from Fig Partners) and Jeremy Zhu (from Wedbush Funds). Greg put $250,000 of his personal funds into the transaction and Jeremy invested through Wedbush. These are not patient investors. Both will encourage a transaction at a significant premium.

It is my opinion that American River can afford to pay $3.50 for community first and that Trico can pay $3.75. I have no idea what North Valley would pay for the bank, but my best guess is somewhere in the same range.

The deposits of CFBN and the branch locations are very valuable to these institutions. The FDIC acquisition game is over and these banks are still reaching for growth.

I would expect on the next earnings press release CFBN will announce it has hired Fig Partners to pursue strategic alternatives and then a month later, in my opinion, CFBN will announce that is being bought by one of these three larger banks. For an investor who wants a safe investment (the capital reserve at CFBN is very healthy) and a quick increase in the stock price, CFBN makes a lot of sense.

Disclosure: I am long OTCPK:CFBN.