A Pair of Speculative Bank Plays

 | Jun 19, 2012 | 1:30 PM EDT
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Life is full of irony and unintended consequences. More than three years since the height of the financial crisis, we still have banks that are too big to fail and are working through providing a proper regulatory structure. The monstrosity known as the Dodd-Frank bill is slowly moving along toward being implemented. Ironically, given that the focus was to punish big banks and ensure they could not bring down the financial system again, the bill may end up hitting the cost structure of smaller banks much harder than their bigger brethren. The additional costs and frustration of complying with the additional regulations is likely to drive many small banks into the arms of larger institutions, which was recently profiled in the Wall Street Journal. To profit from that likely outcome, I have selected two small banks that are bargains at current prices, with the kicker that I could easily see them being bought out at a premium in the future. Both have net insider buying, solid balance sheets and pay generous dividends.

Oneida Financial (ONFC) provides various banking products and services through 11 full-service branches in upstate New York.

Four reasons ONFC is a solid value at $10 a share:

  • Insiders have bought almost 30,000 net shares over the past six months. The stock provides a generous dividend yield of 4.7%.
  • The stock is selling at the very bottom of its five-year valuation range based on price/earnings, price/sales, and price/cash flow.
  • The stock is cheap at 79% of book value and in the first quarter of 2012, it grew book value by a little more than 9% year over year. Non-performing assets also dropped 41 basis points to just 0.75% of total assets over the year.
  • The bank is one of the few financial institutions that can say earnings were higher in 2011 than the "boom" years of 2006 and 2007.

BCB Bancorp (BCBP) provides myriad banking products and services through 11 full-service branches in New Jersey.

Four reasons BCBP is a good pick up at just $10 a share:

  • Three different insiders have added small positions to their holdings over the last month.
  • The stock provides a solid dividend yield of 4.8%. The dividend payout is also 50% higher now than it was in 2007.
  • The company has done a nice job in growing revenues right through the recession. Revenues were approximately 50% higher in 2011 than they were in 2007.
  • The stock is selling at 96% of book value and less than 7x 2011's operating cash flow. BCBP is not covered by many analysts, but TheStreet Ratings did upgrade the shares to Buy in May.

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