Inside Jobs

 | Sep 29, 2011 | 2:00 PM EDT  | Comments
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I tried to get off to a late start this morning. I stayed up watching all that lovely baseball late night and enjoyed every minute of it. I cannot prove the Yankees threw the game to knock Boston out of the playoffs, but I confess that I hope they did and that the story comes out someday in a tell-all book. My Orioles did their part by sending the Red Sox home early. It was simply a great night to be a baseball fan. Now we can all root for a Yankees vs. Phillies World Series, so we can watch the sparks fly between Jim Cramer and Doug Kass. Of course, with a school-aged child and a puppy in the house, my late start was just a pipe dream -- so I am doubly grateful that it's National Coffee Day.

While I was watching the games, I spent some additional time looking through recent insider buying filings. This time I was specifically looking for banks with interesting buying patterns or large executive purchases of stock. Although I am always looking for cheap stocks of any stripe it is no secret that my focus right now is on the banks. Although it is taking an extraordinarily amount of time for banks to find a bottom the community and regional banks offer a once in a lifetime type opportunity for investors with patience, discipline and a very long time frame. Continued real estate woes and new and exciting forms of stupidity in Fed policy have continued to pressure these stock prices but they are priced for the end of the world. I doubt the world ends and these banks recover and consolidate and much higher prices.

One bank that caught my eye right away is Center Bancorp (CNBC). Activist investor Lawrence Seidman has been accumulating the stock and was elected to the board of this New Jersey-based bank. The stock is a little higher than I usually like at 1.3 times tangible book value but Seidman has a strong record of forcing positive change at small banks. This is also another bank that has received approval for Small Business Lending Fund financing to replace TARP funding at a much lower cost. This 13-branch company has a little more than $1 billion in assets and is the third largest national bank headquartered in the crowded New Jersey marketplace. The bank is in great financial shape compared to its peer group. Non-performing assets are just 0.88% of total assets, well below most banks in this difficult environment. Insiders think the future is bright as officers and directors have bought 48,000 shares in the past few months.

MidSouth Bancorp (MSL) is another bank that has seen strong insider buying recently. With 34 branches in Louisiana and East Texas, the bank has implemented strong improvements in its operations and balance sheet so far this year. At the end of the second quarter the bank had seen nonperforming assets fall by 22%. Since the quarter's end the bank sold its largest nonperforming asset, a shared $2.7 million loan. The company has taken advantage of the weak banking market by making acquisitions in recent months in both Texas and Louisiana. Insiders clearly like their prospects, as they have purchased almost 50,000 shares in the past month.

I have been following banks for a long time now, and insiders in bank stocks have two pronounced tendencies: They tend to be early in their purchases and, over time, they tend to be right. When I see a steady pattern of insider activity in bank stocks, I have found it profitable to pay attention and dig deeper.

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