As we continue to move around the country looking for small banks to participate in the Trade of the Decade, we turn our attention now to the Northeast. Here is where we begin to run into an embarrassment of riches. The Northeast corridor of the United States is where the largest population concentration is located, and it is also the most overbanked part of the U.S. There are dozens of small banks and every time there is a whiff of economic growth, a few more pop up. The consolidation wave will be very strong in this region, as it is fiercely competitive and there just isn't enough market share for everybody.
One of my longtime favorite banks for the trade of the decade is ESSA Bancorp (ESSA) of Stroudsburg , Pennsylvania. The bank has 27 branches in mostly rural Monroe Country, with about $1.6 billion in assets. The equity-to-asset ratio is over 12 and non-performing assets are just 1.79% of total assets. ESSA sticks to basic banking; 85%of the loan portfolio is on single-family housing and commercial real estate loans. They just completed the purchase of a smaller bank to expand their footprint into the Wilkes Barre and Scranton markets. Management is very shareholder-friendly and just announced another 5% stock buyback plan in February. The bank also pays a dividend, and the shares yield 2.53% at the current price.
Prudential Bancorp (PBIP) is located in the heavily overbanked Philadelphia market. The bank just completed its second step in the mutual conversion process earlier this year and the balance sheet is still flooded with cash from the offering. The equity-to-asset ratio is over 23 right now, and management will need to get that to work making loans, raising the dividend or buying back stock over the next year or so. The loan portfolio is solid, with non-performing assets of just 1.43%. The stock is definitely a bargain, as the shares trade at just 82% of book value right now.
The shareholder list at Prudential is crowded with smart, successful value and activist investors. EJF Capital, Michael Price, Joseph Stilwell, PL Capital, and Lawrence Seidman all have a stake in the bank right now. Thrift conversions have long been a favorite of patient value investors, and they appear to have loaded up on Prudential.
If we jump all the way up the coast to Lewiston, Maine, we find 12-branch Northeast Bancorp (NBN). The bank has $745 million in assets and the equity-to-asset ratio is 12.9. They have a heavy commercial real estate weighting in the loan portfolio, with a 44% concentration. It is working for them as nonperforming assets are just 1.28% right now. The bank just took the unusual step of cutting the dividend so they could buy back more stock, while it is trading at just 85% of book value. Bank CEO Richard Wayne told shareholders: "we believe that our shares are undervalued, based on current market prices. Our goal in implementing this stock repurchase plan is to enhance shareholder value and, coupled with a reduction in our common stock dividend, provide the company with greater flexibility in managing its capital position as we continue to implement our growth strategy."
Mr. Wayne owns over 240,000 shares of the bank, so I suspect he has the same interest in a higher share price as his investors. He has some fairly sharp shareholders, as Michael Price and Castine Capital both have significant stakes in the bank. A 13d was filed recently showing that Oklahoma based Magnolia Advisors has accumulated more than 6% of the outstanding shares.
Back down on the big city we find Intervest Bancshares Corp (IBCA), headquartered in Rockefeller Plaza in the heart of Manhattan. Although based in the Big Apple, the bank's branch network is on the Gulf Coast of Florida. Intervest specializes in commercial and multifamily lending. Its strategy is different from most of our little banks', as it seeks to attract deposits and use those funds to originate commercial and multifamily real estate loans on a profitable basis. In addition to its small branch network it also attracts deposits via internet banking. It is working pretty well for Intervest. Earlier this week it announced a 79% year-over-year increase in earnings. The stock is still very cheap: it changes hands at just 82% of book value.
The stock has the usual collection of smart shareholders as PL Capital and EJF Capital are among those holding a stake in Intervest. Arbiter Partners, a very successful hedge fund led by Walter Schloss' nephew Paul Isaac, also has a large position in the bank. Insiders own about 10% of Intervest, so we are all on the same side of the proverbial table.
Keep in mind that I am highlighting some of the largest small regional and community banks. Those willing to put in the time to dig in will find a bunch of very small banks that are publicly traded and are incredible long-term bargains.
