3 More Thrifts That Are Thrifty Buys

 | Mar 01, 2016 | 1:00 PM EST
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I have to confess that this Warren Buffett fellow is starting to annoy me a little. It is bad enough that he insists on holding his annual meeting on my birthday weekend in May every year. A lot of people who should be directing their thoughts and cash to finding me a great gift are instead out in Omaha spending their money on Sees Candy and steak dinners at Gorat's.

Now just as I get started on a great series on thrift conversions, he releases his annual letter, and I have to drop everything I am doing to cover that. Now that the grand event is behind us, let's once again turn our focus to the investment possibilities in outstanding former thrifts that have not yet been taken over.

You may recall that when mutual thrift savings institutions make the decision to go public, there is usually a one-year prohibition on dividends and buybacks and a three-year takeover restriction. Often these high-quality, capital-rich institutions receive an offer not long after the three-year period has passed. Before the financial crisis, the average life span of a converted thrift was about 5.4 years. That time period has lengthened some, as deal pace slowed during the crisis, but it looks like it is shortening again. The majority of recent former thrift takeovers had been public less than five years. 

On Friday, I looked at some former thrifts that will see the takeover restrictions lifted later this year. Today, I want to visit some that passed the time limit last year and may soon attract the attention of buyers looking to grow their asset base, branch network and earnings power.

FS Bancorp (FSBW) of Mountlake Terrace, Washington, passed the three-year mark back in July. The institution just closed on a bank-branch deal with Bank of America (BAC), and now has 12 branches in the Puget Sound area, with almost $700 million in assets. The bank is in excellent financial shape, with an equity-to-assets ratio of 11.62. Its loan portfolio is also in fantastic shape, with nonperforming assets that are just 0.11% of total assets. 

It just reported record earnings for 2015 and announced its 12th consecutive dividend. The stock is trading just below book value and yields 1.15% at the current price. It has a buyback plan in place that has 325,000 shares remaining, but did not buy any shares in the fourth quarter of 2015: The company needed cash for the branch deal and the stock price was generally rising. There are several bank stock specialists and activists -- including Wellington, Joseph Stilwell and FJ capital -- that own shares of the bank.

HomeTrust Bancshares (HTBI), with 39 locations in North Carolina, Tennessee and Virginia and $2.7 billion in assets, would appear to be a perfect target for a larger bank looking to expand in the area. The three-year mark passed back in October, and it is in some great markets. Potential buyers better be prepared to hit a moving target, as management at HomeTrust is a lot more interested in buying than selling. Since the conversion, it has used whole-bank and branch acquisitions to grow its asset base from $1.6 billion to over $2.7 billion, today. The bank has 130,461 shares left on its 5th buyback plan since conversion. The plan was announced back in July and the bank just announced a 6th repurchase plan for another 5% of outstanding shares. They are also in great financial shape with an equity-to-assets ratio of 12.04 and nonperforming assets that are just 1.19% of total assets. The stock trades right around book value, right now. FJ Capital is also is a shareholder of the bank.

Northfield Bancorp (NFBK) is another former thrift that has been doing some buying. The New Jersey-based bank is acquiring Hopewell Valley Community Bank (HWDY), and the resulting bank will have $3.6 billion of assets and a very attractive network of 18 branches in Hunterdon, Mercer, Middlesex, and Union counties, New Jersey, plus 21 branches in Staten Island and Brooklyn, New York. They have plenty of capital ,with an equity-to-assets ratio of 15.97, and nonperforming assets are just 0.50% of total assets. Management has done a very good job of managing the bank and the shares currently reflect that -- trading at 1.31x book value. Even though Northfield has been eligible for takeover offers since the end of last January and has a very attractive footprint in the Northern New Jersey and New York City markets, so any potential acquirers will have to be willing to pay premium prices.

Buying thrifts that are near or beyond the takeover threshold is a smart approach to investing in the trade of the decade. Even if a takeover offer does not materialize, you are usually buying a well-run bank with plenty of capital and strong loan portfolios. If you focus on the price you pay and accumulate shares at or below book value, this approach should work out very well for you.

Now, I am off to Disney/ESPN to watch some baseball. Let's Go O's.

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