Yesterday I looked at banks to buy in the top three states for business according to the latest CNBC report. It just makes sense that if a state is a good place to be in business, it's a good place to own a bank. Choices were limited in Utah and Colorado as there simply are not that many publicly traded banks, but we came up with one in each state that should be an outstanding long-term holding. There were a lot more choices in Texas, but most of them are trading at premiums and many have a high level of exposure to the oil and gas industry. I picked my most recent bank purchase, Green Bancorp (GNBC) , as it has eliminated its energy exposure and the stock trades below book value. Today I want to look for banks in the two remaining top five states for business.
I never really thought of Minnesota as a big pro-business state, but not only is it fourth this year in the CNBC report, but it ranks seventh over the last decade. The state scores high for infrastructure, education, technology and quality of life, and the combination has kept it in the top tier of the ranking. There are not a lot of publicly traded banks in Minnesota, but there are two banks worth considering for your long-term portfolio.
TCF Financial (TCB) is a bank with $21 billion in assets and a strong, diversified loan portfolio. In addition to traditional consumer and commercial portfolios, TCB has divisions that do auto lending, inventory financing and equipment leasing. These are higher-yielding businesses and TCB does a fantastic job of underwriting the loans as its nonperforming assets are just .14% of total assets. The bank has 399 branches across the Midwest and conducts its financing operation all over the United States. The bank trades at about 120% of tangible book value but is cheap when valued on earnings, with a price/earnings ratio of just 11. The stock pays a 2.34% yield, so you do collect some income while waiting for the favorable business climate to help lift the shares over time.
North Carolina does come to mind when I think of business-friendly states. The state has strong financial, agricultural and manufacturing sectors and the presence of major universities in the research triangle of Raleigh, Durham and Chapel Hill has spurred growth in biotechnology and high-tech industries. Here we have a lot more choices to consider.
I am a big fan of Asheville, North Carolina-based HomeTrust Bancshares (HTBI) . The bank has been in growth mode since completing its conversion from a mutual thrift to a shareholder-owned bank. Since then, HomeTrust has added five markets and grown assets from $1.6 billion to more than $2.7 billion. It also has been active buying back stock and has repurchased about 25% of its shares outstanding since it was allowed to begin buybacks in 2013.
HomeTrust management is focused on growing the bank in its home market of North Carolina as well as in eastern Tennessee, South Carolina and Virginia. The stock is trading at book value and is in solid financial condition, with an equity-to-assets ratio of 11.77 and nonperforming assets that are just 1.08% of total assets. HomeTrust either is going to continue to grow and drive earnings and its stock price higher or someone is going to decide it is too attractive of a franchise and make an offer for it. Either would be a huge win for investors.
Also based in Asheville is ASB Bancorp (ASBB) . This bank has been under fire from activists, and one noted bank activist, Lawrence Seidman, currently has a representative on the board. The stock is trading at tangible book value and I would not be shocked to see the bank sold at a decent premium to a larger competitor. ASB has about $786 million in assets and is in good financial shape, with an equity-to-assets ratio of more than 11 and nonperforming assets that are just 1% of total assets. The loan portfolio is a nice mix of residential real estate and commercial real estate loans with limited exposure to commercial and industrial loans or construction loans.
Owning banks in business-friendly states is just common sense. Locations where businesses can thrive have low unemployment rates and lots of people buying homes and cars. There will be stable deposit bases and good loan demand. Commercial and residential real estate markets will be strong. When we can find reasonably priced banks in these areas, long-term ownership should be very rewarding.