As we wrap up our tour of the nation's little banks, I want to turn to the Midwest today. This is another region that is rich with opportunities for the Trade of the Decade investor. When I spoke with long-time bank stock investor Phil Tillman last week, he mentioned that there were a lot of little banks in his home region just looking for a chance to sell as a result of management and board fatigue. This is another area that is heavily overbanked, particularly in the urban and close suburban areas. Consolidation has begun in this area, particularly in and around the cities of Chicago and Milwaukee, and it is going to continue for an extended period of time. As with the rest of the country, most of the opportunities in Midwest banks are in the really small banks. It's worth your time to dig a little deeper to uncover these gems.
One of my favorite Midwestern banks is Westbury Bancorp (WBB). The 12-branch bank has about $542.9 million in assets. Westbury underwent the thrift conversion process last year and the balance sheet is strong post offering. The equity-to-assets ratio is over 16 and management has been using excess capital to buy back stock. They announced a new buyback plan for 4.9% of the outstanding shares back in May. The loan portfolio is primarily in single or multi-family housing and commercial real estate. Non-performing assets are just 1.02% of total assets, so the portfolio is in great shape right now.
Insiders have been buying shares in the open market recently. Institutions are also buyers of the stock and the shareholder list is another one of those "everybody owns it" collections. FJ Capital, PL Capital, Castine Capital, Joseph Stilwell and Lawrence Seidman all own shares of Westbury. It is easy to see why they all think the stock is a bargain, as the shares trade at just 80% of book value right now.
HopFed Bancorp (HFBC) is located in Hopkinsville, Kentucky, and has branches in the Tennessee. In all it has 18 branches with about $959 million in assets. The equity-to-assets ratio is 10.76 and non-performing assets are just 1.22% of total assets. This bank has already felt the sting of activist investors, as Joseph Stilwell forced them to change direction last year, after accumulating a large stake. They were planning to buy a smaller neighboring bank, which the activist thought was the wrong move. He waged a proxy fight and shortly thereafter the bank cancelled the acquisition and doubled the dividend instead.
Mr. Stilwell is still involved as he owns 9.4% of the stock and has a representative on the board of directors. FJ Capital and PL Capital also have large stakes in the bank. The bank is still trading at bargain levels as the shares fetch just 89% of book value right now.
NASB Financial (NASB), located in Grandview Missouri, has seven branches in its home state and two in neighboring Kansas, with $1.1 billion in assets. Non-performing assets are a little high, at 2.74% of total assets, but they have been dropping for six quarters in a row and are well below the 8% peak reached back in 2011. The bank appears to have more than enough capital to deal with any problems as it continues to clean up the portfolio and as the equity-to-assets ratio is north of 17. Insiders own 36% of the shares, so they have a vested interest in righting the ship and getting the stock price higher over the next few years. The shares currently trade at just 87% of book value, so there is a lot of upside as conditions continue to improve.
The Trade of the Decade in small bask is still in the early innings. Many of the mid-sized banks that are buyers today will be sellers later in the cycle, as banks of all sizes look for earnings and asset growth. This is a multi-year trend that can build enormous wealth for those who buy the small banks now at significant discounts to book value. I have highlighted a few of the larger small banks around the U.S., but the real bargains are in little banks that Wall Street has never heard of and which the large institutions cannot buy. The trade of the decade very much favors the individual investor, and at least some of your long term portfolio should be invested in these small banks with huge potential.