I had my second small bank takeover of 2015 on Tuesday. WSFS Financial Corporation (WSFS) is buying Alliance Bancorp, Inc. of Pennsylvania (ALLB) as part of the Wilmington, Del., bank's continued push into Pennsylvania.
I have owned Alliance for about 18 months and it's about a 55% gain. Back In January, a microscopic little bank out in California was bought after about a two-year holding period. That also was about a 50% gain from my original purchase price. The Alliance deal is a 28% annualized return and the tiny bank deal nets me an annualized return of about 22%. I am quite happy about both mergers.
I realize sometimes I sound like a teenage girl talking about her new dreamy boyfriend when it comes to the community banks and the Trade of the Decade . But I am convinced that this is the single-greatest opportunity in the markets right now. I am not the only who thinks so.
When 13F filings came out we saw continued buying from the activist investors and what I call bank smart money like Michael Price and Arbiter Partners. The people running the banks have also been opening their checkbooks in 2015 and buying shares of the community banks they run.
Bank of Commerce Holdings (BOCH) is based in Redding, Calif., and is a great example of a Trade of the Decade bank. The bank has five branches with almost $1 billion in assets and the balance sheet and loan portfolio are solid. Bank of Commerce Holdings has an equity-to-assets ratio of 11.3 and nonperforming assets are just 2.23% of total assets.
True to their name, most of the loan portfolio is on commercial real estate and commercial and industrial (C&I) loans. Less than 10% of the portfolio is in residential real estate. Three members of the board of directors and one bank vice president have cracked open their checkbooks and made open market purchases of the shares so far in 2015.
Westbury Bancorp (WBB) has been moving higher in 2015 but the stock is still trading at just 89% of book value. The bank is based in West Bend, Wisc., and has nine branches and about $581 million in assets. Westbury is financially strong with an equity-to-assets ratio of 11.75 and nonperforming assets are just .62% of total assets.
The loan portfolio is fairly mixed with about one-third in residential real estate, close to 20% in multifamily housing and 31% in commercial real estate. The balance is in C&I loads, home-equity loans and a little bit of construction and development loans. Four directors of the bank have been buying the stock in 2015 and the bank president was buying back in December.
MBT Financial (MBTF), based in Monroe, Mich., has also seen consistent insider buying in the first quarter of the year. The market area they serve between Detroit and Toledo, Ohio, has struggled in recent years. There are signs, however, that the region is beginning to see an economic turnaround that will benefit MBT Financial in the years ahead.
Management has done a spectacular job of getting rid or working out nonperforming assets. NPAs have declined from over 5% three years ago and are now just 1.46% of total assets. The equity-to-assets ratio is 10.36 up from just 6 in the first quarter of 2012 , so they have also done a solid job of increasing capital level.
The stock is still cheap at about 90% of book value and insiders like what they see in the future. Four insiders, including both the CEO and CFO, have been buying stock so far this year.
None of these banks is going to be confused with Citigroup (C ) or Bank of America (BAC) anytime soon. They will not even be confused with regional banks like Key Corp (KEY) or Huntington (HBAN). These are your basic hometown banks with local management that are starting to put the problems of credit crisis behind them.
They have to deal now with things such as rising regulatory costs and technology challenges. The fact that they are buying shares of their own bank indicates that they believe they are up to the challenge. I cannot help but think that they know the likelihood of an offer to buy the bank at a healthy premium to the current price is a strong possibility over the next few years.
Unlike flying to the mid-Atlantic this afternoon just in time for a snow storm, getting heavily-involved in community banks has been one of the smartest decisions I have ever made.
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