Ledyard Financial Group, Hanover, NH (LFGP)
A Case of Underwater, in Need of Rescue
Conventional Banking Wisdom holds that the duration of your assets should never be far from the duration of your liabilities, or as Warren Buffet likes to quote the ancient Polonius as saying, “Neither a short term borrower, nor a long term lender be.”
Nonetheless, during the 2020 - 2021 Covid Recession, when deposit costs at most banks fell dramatically, a good number of bankers could not resist the temptation to earn extra income by buying long-term securities yielding below 3%.
When the Fed quite predictably raised interest rates to more normal levels, these banks suddenly found themselves with both large losses on the securities, and severely reduced earnings, since those low yielding securities now needed to be funded by higher cost deposits.
Ledyard Bank’s former Management Team (and current board) was among this special class of idiots that led their banks out to sea without a life preserver. Now underwater, Ledyard and its shareholders are in need of rescue.
One can only hope the Board will sell Ledyard for a premium of as much as 50% above LFGP’s current market quote.
Disclosure: As of this posting, I own shares of LFGP and may subsequently either dispose of them or purchase more.
Prospective Buyers
Over the years, Ledyard has built both a valuable wealth management business with $2.1B under management, and an enviable deposit franchise with 32% of Hanover's $1.3B of deposits. A number of neighboring institutions would be pleased to absorb Ledyard's securities losses and loan marks to obtain these assets.
Bar Harbor Bankshares, Bar Harbor, ME (BHB)
Camden National Corp, Camden, ME (CAC)
NBT Bancorp, Norwich, NY (NBTB)
Financial Snapshot
Scoundrels
Bruce King, Chairman
Josephine Moran, President and CEO
Andrew Samwick, Director (for 19 years)
Red Flags
Investors in Ledyard Financial Group have had little cause for enthusiasm since LFGP peaked in 2021.
Management expanded the bank’s securities holdings well beyond the recommended 10% of assets, largely with low yield, long term securities
Ledyard Bank has not earned its cost of capital since.
The bank hasn't earned more than its dividend in four of the past six quarters.
Ledyard’s Board of Directors doesn’t believe enough in the bank’s future themselves to invest in it.
Sources
Bank
Other
Confidential interviews with shareholders and analysts