UPDATE: Banc of California, Irvine, CA (BANC)

BANC is sweeter without Sugarman.

Since I reviewed Banc of California in 2014, almost nothing about the bank is the same except its name. And that's a good thing!

Now, BANC investors can probably double their dough over the next four years. By then, its book value should approach $20 per share and earnings $2.00 per share.


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


Prospective Buyers

PacWest Bancorp, Los Angeles, CA (PACW)
Umpqua Holdings, Portland, OR (UMPQ)
Zions Bancorp, Salt Lake City, UT (ZION)

Financial Snapshot
as of 09/30/2017

Total assets:
$10.3B
Tangible book value per share:
$13.80
NPAs to assets:
0.2%
Price to book:
146%
Market cap:
$1.09B
Dividend yield:
2.4%
Trailing 12-month ROA:
0.73%
Trailing 12-month ROE:
7.93%
TARP:$0M*

*Redeemed $19.3M 12/15/2010

Luminaries

Robert D. Sznewajs, Chairman
Douglas H. Bowers, President and CEO
John A. Bogler, Executive VP and CFO

Gold Stars

Sugarman and Co-Scoundrels are long gone.* 

Thankfully, these high-performing, adult banking professionals are now in charge.
  • Chairman Robert Sznewajs helped pull Michigan National Bank (MNCO) out of the ditch in the early 90’s, sold it to National Australia Bank and, more recently, presided over the turnaround and sale of West Coast Bancorp (WCBO).
  • CEO Doug Bowers is a 35-year bank veteran who ran Square 1 Financial (SQBK) until its successful sale to PacWest in 2015.
  • New board member Kirk Wycoff of Patriot Financial Partners is known for impeccable due diligence. 
  • New board member Richard Lashley from PL Capital has maximized shareholder value in dozens of banks and thrifts.
*For more of the backstory on how and why BANC went Sugarman-free, see this October 2016 exposé by Aurelius

Three other reasons I am sweet on this now-Sugarman-free enterprise include:
  1. The size of combined stake PL Capital and Patriot Financial have in the game — a hefty 6,250,000 shares* worth $134M –gives me confidence there will be no more shenanigans here.
  2. CEO Bowers owns 92,000 shares worth $1.97M, 57,000 of which he bought in the open market last September. This tells me Bowers is confident in his ability to create value here.
  3. The OCC finished an exam of BANC late last summer, suggesting the problems Sugarman created have likely been reduced to mere crumbs by now. 
*12.5% of BANC's outstanding shares

Sources

  • Confidential interviews with shareholders and analysts

UPDATE: CNA Financial Corp, Latrobe, PA (CNAF)

Three years after my November 2014 Timyan Bank Alert review of CNAF, the stock is still ripe for investors cherry picking high dividends.

CNAF is still cheap — priced roughly the same as in 2014, whereas the BKX index is up 47%.

Today, though, I'm less impressed with Commercial Bank & Trust's Management, which is missing opportunities to cultivate value and is putting CNAF at risk of languishing around book value for another three years.

More responsible caretakers of the stock would reduce the bank's bond market bet, and use excess capital to repurchase shares. CNAF could then reach $30 per share and pay increased dividends.


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


Prospective Buyers

As a unionized bank, Commercial Bank & Trust of PA is highly unlikely to sell in the foreseeable future, but that doesn't mean these local players wouldn't find it to be sweet pickings.

First Commonwealth, Indiana, PA (FCF)
F.N.B Corp, Pittsburgh, PA (FNB)
S&T Bancorp, Indiana, PA (STBA)

Financial Snapshot
as of 09/30/2017

Total assets:
$429M
Tangible book value per share:
$20.70
NPAs to assets:
0.08%
Price to book:
106%
Market cap:
$62.8M
Dividend yield:
4.7%
Trailing 12-month ROA:
1.04%
Trailing 12-month ROE:
7.51%

The Crew

George V. Welty, Chairman
Gregg E. Hunter, Vice Chairman, President and CEO
Thomas D. Watters, Executive VP and CFO

The Skinny

Sweet Notes
I find a lot of things sweet about this stock pick:
  • Insiders own 25% of CNAF 
  • CEO Hunter is CNAF's largest holder with 9.9%
  • CNAF offers a nice safe dividend yielding 4.7%
  • The stock is cheap to book at 106%
  • Commercial Bank & Trust of PA has built a wonderful deposit base and growing, albeit slowly, loan portfolio
  • 32% of the bank's deposits are low-cost transaction accounts
  • Credit quality at the bank is pristine 
  • The bulk of loans are lower-risk 1-4 family mortgages
Sour Notes
On the other hand, every cherry has a pit, and CNAF could choke on any one of these pitfalls:
  • Commercial Bank & Trust of PA is holding more securities in its portfolio than advisable, subjecting the bank to significant losses if interest rates rise
  • The bank's location in a low growth area of Pennsylvania limits opportunities for loan growth
  • Management has probably squeezed all the earnings growth we're going to see from cost cutting — there's not much more to cut
  • Management's reluctance to buy back shares may spoil CNAF's best opportunity to grow earnings per share

    Sources

    • Confidential interviews with shareholders and analysts

    First Resource Bank, Exton, PA (FRSB)

    A Case of Doing Pennsylvania Proud


    First Resource is my kind of bank. It offers good old fashioned, treat-your-customer-right community banking, and is unfollowed by any Wall Street analyst.

    If you know any Pennsylvanians who'd appreciate an opportunity to double their money by investing locally, spread the word! I'd love to see them move their Wells Fargo or Bank of America accounts to First Resource Bank, buy some FRSB stock, and come along for the ride.

    In three years, FRSB should be earning over $1.00 per share, reach book value of $10, and trade at $15.


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

    Prospective Buyers Acquiring First Resource Bank would vault any of these local competitors up to a solid third place in marketshare, behind Bank of America (BAC) and BB&T (BBT).
    Isn't that what we want — more of America's community banks competing powerfully against the Too Big To Fail banks?

    Bryn Mawr Bank Corp, Bryn Mawr, PA (BMTC)
    DNB Financial Corp, Downington, PA (DNBF)
    Fulton Financial Corpo, Lancaster, PA (FULT)

    Financial Snapshot
    09/30/2017

    Total assets:
    $249M
    Tangible book value per share:   
    $8.72
    NPAs to assets:
    2.4%
    Price to book:
    112%
    Market cap:
    $25.7M
    Dividend yield:
    0%
    Trailing 12-month ROA:
    0.7%
    Trailing 12-month ROE:
    8.5%
    TARP:
    $0M*

    *Redeemed $2.6M 09/15/2011

    Luminaries

    James Griffin, Chairman
    Glenn Marshall, President and CEO
    Lauren Ranalli, Executive VP, Secretary, and CFO

    Gold Stars

    Great People - I first learned about First Resource Bank from the proprietor of Honesdale's Hotel Wayne, who is also a top-notch bank investor. He introduced me to Glenn Marshall, who started the bank in 2004, built it from nothing, and manages it with transparency and integrity.

    Great Market - Both branches of First Resource Bank are in Chester County, which is one of the best banking markets in the State of Pennsylvania. It has the state's highest median household income ($86K) and benefits from both a low unemployment rate (3.4%) and proximity to Philadelphia.

    Great Banking - First Resource Bank runs lean on equity, is a low-cost provider, and consistently keeps expenses close to 2.5% of assets. I also appreciate that the board and management are heavily invested in FRSB, owning nearly 25% of the stock.

    Great Opportunity - FRSB has lots of room to grow. Within five miles of the bank's two branches lie $5B in deposits. In the wake of the mergers of National Penn Bank (NPBC) and Susquehanna Bank (SUSQ) into BB&T (BBT), First Resource has an opportunity to pick up talent and customers, as well.


    Sources

    • Confidential interviews with management and shareholders