Before I move on from converted thrifts, I want to visit some older conversions that have managed to hang around without being taken over. The credit crisis changed things in the banking world and some thrifts that converted during the early stages of the recovery have managed to stay off the radar screens of the more acquisitive banks.
What makes these banks so interesting to me as an investor is that they raised capital when things were bad and have been able to grow as conditions improved in the industry. Many of them are trading at levels that make them very attractive long-term stocks and they may attract a bid as the M&A wave in small banks rolls along.
From the Class of 2011, we have ASB Bancorp (ASBB). Given the amount of banks looking to expand in North Carolina, I am surprised ASB has not yet attracted a bid. I suspect it is only a matter of time, as it has a very attractive network of 13 branches and about $780 million in assets. Bank activist Lawrence Seidman owns 6.7% of the stock and recently gained a board seat for his nominee. Seidman has not been shy about what he wants the bank to do going forward.
Back in August, he sent a letter to the ASB board that said, "Unfortunately, the ASBB board and senior management have not earned the right for ASBB to remain independent due to its poor financial performance during their extended tenures. Much has been written about 'too big to fail,' but unfortunately ASBB falls into the category of too small to survive."
The bank is in decent financial shape with an equity to asset ratio of 10.76 and non-performing assets that are just 1.04% of total assets. The bank has not been able to increase returns to anywhere near industry averages and would probably fare better as part of a larger institution. The shares are trading at 95% of book value, so there is decent upside to the average takeover multiple of about 1.4.
The Class of 2010 has another bank that is an outstanding candidate for a trade-of-the-decade portfolio. Eagle Bancorp (EBMT) is the holding company of First Opportunity Bank of Montana, based in Helena. The bank has 13 branches in southern Montana with about$ 625 million in total assets. It is in good shape with an equity to assets ratio of 10.36 and a non-performing assets ratio of just 0.5%.
The bank has made some small acquisitions in the past but it probably needs to pick up the pace of growth to get past the $1 billion asset level. The shares are trading at around 90% of book value and the valuation and valuable footprint could attract the attention of an acquirer. It has a buyback plan in place but has not been very aggressive as it repurchased only 15,000 shares in the fourth quarter. The bank could make its stock more attractive to acquire enough assets to go over the $1 billion mark by more aggressively buying back shares. This is a bank that needs to either grow or sell, and either of those will be good for shareholders.
Also from the thrift conversion Class of 2001 is Atlantic Coast Financial (ACFC). The bank is located in Jacksonville, Fla., and has 12 branches with $855 million in total assets. While the loan portfolio is in great shape, with non-performing assets of just 0.87%, the equity to assets ratio is a little lower than I like to see at 8.98. Florida has been red hot for community bank merger activity, and at some point this bank is going to attract the attention of a larger franchise looking to expand here in the Sunshine State. There are several potential activists in the stock, including PL Capital, FJ Capital and Wellington, that might be willing to give them a nudge in the direction of a sale. The shares are trading at 1.07x book value and Florida buyers have been paying premium prices, so there would seem to be plenty of upside in the stock at this price.
A significant percentage of the banks in my trade-of-the-decade portfolio began life as mutual thrifts. After the conversion, most of them are well-run, well-capitalized institutions that are likely to attract the attention of a buyer at some point in time. They may be off Wall Street's radar screen, but they should be on yours.
