CBM Bancorp, Baltimore, MD (CBMB)

A Case of a Safe Harbor


Stormy market conditions always get me scanning the horizon for safer investment opportunities. CBM Bancorp looks like one to me.

Chesapeake Bank of Maryland may be just a small, newly converted thrift, but the banker steering it has successfully converted and sold two others like it over the past 20 years.

When the bank's three-year moratorium on selling expires in 2021, I expect Captain Solomon will sell CBM for over $17 per share, landing a not-spectacular but low-risk-and-fairly-certain 35% return on today's price for shareholders.


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


Prospective Buyers

It's hard to predict the landscape in three years when CBM likely will come up for sale, but it makes sense for these three banks today.

Arundel Federal Savings Bank, Glen Burnie, MD (private)
BV Financial, Baltimore, MD (BVFL)
First Citizens BancShares, Raleigh, NC (FCNCA)

Financial Snapshot
as of 09/30/2018

Total assets:
$217M
Tangible book value per share:  
$14.23
NPAs to assets:
0.9%
Price to book:
89%
Market cap:
$53.4M
Dividend yield:
0%
Trailing 12-month ROA:
0.4%
Trailing 12-month ROE:
3.0%

The Team

William J Bocek Jr, Chairman
Joseph M Solomon Jr, President and "Managing Officer"
Philip E Logan, COO

The Skinny

Eight Reasons I Believe Chesapeake is a Safe Harbor
  1. Chesapeake Bank's CEO has done this before! (Solomon successfully grew and sold two banks already)
  2. Chesapeake's officers and directors are vested in getting this ship to shore. Seven of them purchased the maximum 17,500 shares in the conversion.
  3. Solomon runs a tight ship — Cost of Funds at Chesapeake Bank is only 0.6%.
  4. CBM Bancorp can grow book value simply by buying back stock, and it has the "excess capital" available to do it.
  5. Risk of loans "going bad" on this ship is low wherever the economy may toss us. (Soloman’s banks have always had strong credit profiles, and half of CBM's loans are in the 1-4 Family Mortgage category deemed to be less risky)
  6. Chesapeake Bank commands enough market share to garner a good price in a sale. In fact, it's the only community bank in Halethorpe and Parkville.
  7. Two bank stock investors I admire have significant holdings in CBM Bancorp — Seidman Associates and Stilwell Group.
  8. The bank's leaders don't have time to dilly dally if they plan to retire "on time." When the moratorium on selling CBM expires, CEO Solomon will be 71, COO Logan will be 67, and Chairman Bocek will be 65.

Sources

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