As I continue to look around the nation for stocks that can be included in the Trade of the Decade in small regional and community banks, we can pretty much skip over the southwestern portion of the United States. There are not any publicly traded banks left in the ground zero states of Arizona and Nevada. Many were shuttered or acquired as a result of the horrendous losses experienced early in the crisis. The states of Oklahoma and Texas have a different problem. Their economies, rich in oil and agriculture, allowed them to weather the storm much better than many others, and the banks in those two states are simply not cheap enough on a price-to-book-value basis to consider purchasing right now.
Things take a marked turn for the better when we turn our eyes to another region of the country that was hit pretty hard during the real estate and credit mess. The southeastern part of the U.S. was hit hard, but has begun to recover nicely. I have always said that as there is sunshine and snow, the sun belt will always be the first to boom, first to blow up and first to recover. It is pretty much working out that way once again.
HomeTrust Bancshares (HTBI) of Asheville, North Carolina, has used the weak asset pricing in the banking sector to expand its footprint throughout the region. In the past year, they have closed on deals that expand their service area in their home state as well as into Tennessee and Virginia. The bank has an equity-to-asset ratio of more than 17 and, while the non-performing assets ratio is a little high at 3.29% of total assets, they have adequate capital to handle any problems. As of the end of the last quarter, they had 21 branches and $1.6 billion of assets but management has made it clear they intend to grow, telling investors in their latest 10Q filing with the SEC: "we intend to expand through organic growth and through the acquisition of other community financial institutions and/or bank branches."
The stock is currently trading at just 80% of book value. Management has been buying back stock at the discounted valuation. As of March 31, 2014, the company had repurchased 216,035 shares of the 989,183 authorized in the February 2014 buyback plan. Management is not the only one who thinks the stock is cheap. Noted bank stock investors like ELF Capital and FJ Capital Management are shareholders, as is value investing legend Michael Price.
Charter Financial (CHFN) is a perfect example of a cheap southeastern bank that fits the Trade of the Decade profile. The bank is based in Westport, Georgia, and has 16 branches in its home state as well as Alabama and the Florida panhandle. Assets total just over $1 billion as of the end of the first quarter. The bank completed the first step mutual conversion process last year and still has plenty of capital left from the offering. The equity-to-asset ratio is over 19 and they have been using it to reward shareholders. They just completed a buyback program and immediately announced another for about 10% of the outstanding shares. They also pay a cash dividend and the stock yields about 1.9% at the current price. Nonperforming assets are just 0.91% of total assets, so they are doing a great job of underwriting the loan book.
The stock is cheap at about 88% of book value right now.The shareholder list is like a bank stock investors hall of fame. ELF Capital, FJ Capital, Banc Funds, PL Capital and bank stock activist investor Lawrence Seidman all have a position in shares of Charter Financial.
As with most of the regions we will look at this week, many of the best opportunities in the Southeast are in small banks that just have a few branches and very small market capitalizations. I call them Jimmy Stewart banks, as they look a lot like the Bailey Savings and Loan in It's a Wonderful Life. They are trading at huge discounts to asset value and are financially strong. Many of them are going to be forced to sell by the slow economy and spiraling cost of compliance, and could provide large gains from today's depressed prices. It will be worth your while to dig around and locate these bargain Trade of the Decade community banks.