U.S. Banks & Thrifts Portfolio | Polaris Capital Management

Excellent “value” opportunities exist among U.S. banks and thrifts, as they typically have low downside risk and strong appreciation potential.

The U.S. Banks and Thrifts portfolio is comprised of previously converted thrifts as well as deposit accounts in mutual banks, which give Polaris valuable preferential rights to purchase stock if the mutual institution converts to stock ownership. The bank stocks in the portfolio, typically smaller thrifts and community banks, are broadly diversified geographically. Many of the portfolio holdings have footholds in multiple markets and neighboring states.

While our global portfolios typically incorporate select U.S. banks, the Thrifts portfolio is a dedicated investment strategy focused solely on the financial sector. Accredited and qualified investors interested in this portfolio should contact us directly for a more in-depth strategy discussion, whereby an outline of process, philosophy, holdings and performance can be adequately addressed.

In the meantime, we provide a brief glimpse into our current investment thesis and outlook for the portfolio, cognizant of ever changing macroeconomic conditions (geopolitical risks, interest rates/Fed Funds rates, capital requirements, etc.). Check back regularly to see our outlook for each coming quarter.

OUTLOOK FOR U.S. BANKS AND THRIFTS AS OF 03/31/24

At this point, we are monitoring banks for exposure to commercial real estate and any type of troubled assets or loans. Simultaneously, we are carefully assessing timing of interest rate cuts, as industry experts have shifted expectation from six cuts starting in March to an expectation of three cuts starting possibly in September. Investors are pricing in a “higher-for-longer” environment. Net interest margins are now being squeezed due to a higher cost of funds. Nimble community banks will look for other avenues of growth to bolster profitability – bolstering C&I relationships, replacing low priced loans with higher, restructuring unprofitable securities books, and working out troubled loans. We have already seen such strides in many of the banks we analyze.