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BANX: High Yield, Yet Conservative Outlook

Published Tue, 13 Aug 2019 11:10:09 -0400 on Seeking Alpha

StoneCastle Financial Corp. (BANX) is a closed-end fund focused on the community banking sector across the US, with total assets of ~$165 million. StoneCastle Partners, the ultimate owner of the Fund's manager manages BANX as part of a much broader community banking focused business with $17 billion in assets under management or advisement.
BANX's investing strategy is unique enough to require a bit of background explanation. The community banking sector has some key differences from larger banks. They generally have simpler portfolios, with a large portion of residential and commercial loans in the nearby community. They depend a lot on local community knowledge and relationships. More than 20% of counties in the US have a community bank as their primary source of financing.
A well run community bank can earn a decent return with less of the macro black swan risk faced by larger banks with more complex operations. As the CEO said on the latest conference call, BANX is "primarily a pure-play on the domestic economy." In contrast, most mid-cap and large-cap companies are more directly exposed to changes in geopolitics and international trade policy.
On the recent conference call, management discussed some of the advantages of the community banking sector (emphasis mine):

Well, the smaller banks have always enjoyed, en masse, better net interest margins than the larger banks because the customers of community banks don't mind paying a little bit more for the same... Read more