Luther Burbank Corp, San Rafael, CA (LBC)

A good buy in California


Think you can't afford anything of value in California?

LBC is trading at the 4th lowest price to tangible book value of any US bank with assets over $1B. Investors buying LBC today get a 10% discount from last year's IPO price.

In three years, LBC shareholders could be holding a stock that's earning over $1/share, has a book value near $13/share, and is trading for $15/share.

I don't mind an ROI of 55% in three years, do you?


Disclosure: As of this posting, I own shares of LBC and may subsequently either dispose of them or purchase more.


Prospective Buyers

I don't believe the Trione family will be selling Luther Burbank Savings, but were they to do so, I suspect these two would be the most logical acquirers:

PacWest Bancorp, Beverly Hills, CA (PACW)
Western Alliance Bancorp, Phoenix, AZ (WAL)

Financial Snapshot
as of 09/30/2018

Total assets:
$6.7B
Tangible book value per share:   
$10.05
NPAs to assets:
0.1%
Price to book:
95.7%
Market cap:
$547M
Dividend yield:
2.4%
Trailing 12-month ROA:
0.9%
Trailing 12-month ROE:
10.2%

The Crew

Victor S Trione, Chairman
John G Biggs, President and CEO
Laura Tarantino, Executive VP and CFO

The Skinny

The Trione family founded Luther Burbank Savings 35 years ago with $2M.

On average, these bankers compounded their equity by 18% per year for 35 years.

By the time LBC went public in 2017, the bank's equity had grown to $576M.

Three directors and nine officers bought shares in Luther Burbank's IPO.

One director and three officers continue buying LBC in the open market, which tells me they expect the price to go up.

Excluding its first two quarters in de novo year 1983, Luther Burbank has never had an unprofitable quarter.

Cheers to the Triones for cultivating such a valuable property.

🍷

PS for Biggs:

The one thing that would make me feel better about this enterprise is if you were to use some of the $8.3M you got in total compensation since 2016 to buy than $60K worth of stock.


Sources

Investors Bancorp, Short Hills, NJ (ISBC)

A Case of Big and Liquid


You may have noticed that many of the banks I review here are small and thinly traded. Happily, ISBC is big and trades like water!

I foresee Investors Bank being acquired in the next 18 months for as much as $15 per share. Given today's price of $11.19, that's not quite the splash I prefer, but it's no mere drop in a bucket either.

If Management opts not to sell, their buybacks and 3.9% dividend yield should protect investors from much downside, as ISBC already trades near book value.


Disclosure: As of this posting, I own shares of ISBC and may subsequently either dispose of them or purchase more.



Prospective Buyers

If and when ISBC decides to sell, bids will flow in from a number of industry consolidators like these.

BB&T Corp, Winston-Salem, NC (BBT)
Capital One Financial, McLean, VA (COF)
M&T Bank Corp, Buffalo, NY (MTB)
Toronto-Dominion Bank, Toronto, Canada (TD)

Financial Snapshot
as of 09/30/2018

Total assets:
$25.5B
Tangible book value per share:   
$10.03
NPAs to assets:
0.5%
Price to book:
111%
Market cap:
$3.1B
Dividend yield:
3.9%
Trailing 12-month ROA:
0.65%
Trailing 12-month ROE:
5.27%

The Crew

Kevin Cummings, Chairman and CEO
Domenick Cama, President and COO
Richard Spengler, Executive VP, Chief Lending Officer

The Skinny

Why do I believe Investors Bank will sell?

A) Bank management stands to be seriously enriched by a sale.

Together, Cummings and Cama own 3.5 million shares and 660,000 stock options. At a $15 strike price, those shares and options will be worth $56 million. Plus, upon a sale, these gentlemen will receive a combined Change in Control payout of $50 million.

B) There's a large strategic investor on the Board whom I'd imagine will be advocating for a sale sometime soon.

Blue Harbour Group has owned a filing position in Investors Bancorp since 2014, was given a Board seat in 2017, and is likely losing some patience given the pullback in the stock price to Blue Harbour’s cost basis. Blue Harbour currently owns 9.9% of ISBC.

C) Investors Bank is about to have no regulatory impediments to selling.

The second step capital raise Investors Bancorp concluded in May 2014 at $10 precluded a sale for three years. That expired in May 2017.

Since 2016, Investors Bank has been under a Bank Secrecy Act (BSA) order that halted its proposed purchase of the Bank of Princeton. Management expects the BSA order to be lifted soon.

D) Selling is the most strategically advantageous option available to Investors Bank at this time.

Deposit costs are rising faster than loan yields making it likely ISBC earnings have peaked for the near term. Keefe Bruyette & Woods (KBW) predicts lower earnings for ISBC in 2019 than 2018 and still lower in 2020. Growth by acquisition is essentially no longer an option for the bank, due to ISBC’s low currency.

Sources

New Peoples Bankshares, New Honaker, VA (NWPP)

A Case of Being in People's Hands


As a shareholder, I am in the hands of New Peoples Bank.

More accurately, my investment is in the hands of the people behind New Peoples, as are the investments of 4428 other people.

For myself, and on behalf of these other shareholders, I am grateful to the handful of local business people who put up their own money to turn New Peoples around since 2011, and for the modest performance improvements they had a hand in effecting.

Nonetheless, seven years later, New Peoples Bank is not profitable. It’s time for a handoff.

If the three controlling shareholders play their own hands right, they can garner as much as $3.00 per share in a sale for all of us. If they don’t, we’re all left empty-handed.


Disclosure: As of this posting, I own shares of NWPP and may subsequently either dispose of them or purchase more.


Prospective Buyers

Could one of these local players lend a hand? You'll enhance your own franchise by buying New Peoples Bank and cutting its bloated expenses!

Carter Bank & Trust, Martinsville, VA (CARE)
National Bankshares, Blacksburg, VA (NKSH)
Summit Financial Group, Moorefield, WV (SMMF)

Financial Snapshot
as of 06/30/2018

Total assets:
$685M
Tangible book value per share:   
$2.09
NPAs to assets:
1.9%
Price to book:
91.8%
Market cap:
$45.9M
Dividend yield:
0%
Trailing 12-month ROA:
0.06%
Trailing 12-month ROE:
0.86%

The Crew

Harold Lynn Keane, Chairman
Christopher "Todd" Asbury, President and CEO
John J Boczar, Executive VP, CFO, Treasurer and Secretary

The Skinny

In his last shareholder letter, New Peoples' CEO Todd Asbury professed to be on a path of accelerating the bank from Good to Great.

The problem is: New Peoples' bottomline performance is not even Good, and it's on a path in the opposite direction of Great.

New Peoples Bank reported modest profits in 2013 - 2017, but the bank lost money in two of the past three quarters.

Moreover, Asbury has made clear, shareholders should expect no dividends until New Peoples' recovers the $10.8M in remaining losses accumulated since the bank's inception 17 years ago.

The only person I  can see being able to force a hand on behalf of fellow NWPP shareholders is Richard Preservati. 

Besides having a great name that in and of itself suggests an interest in preserving capital, Richard Preservati owns 12.7% of NWPP stock, is a successful businessman, and knows first hand from other investments what a fair return on a community bank stock looks like.

Two years prior to investing in New Peoples, Preservati bought a significant stake in First Community Bancshares (FCBC), which has handed him a more than fair 1.2% return on assets.

For his sake, my sake, and the sake of the 4427 other shareholders of NWPP, I'm hoping Preservati will lend a hand here.


Sources