Bremen Bancorp, St. Louis, MO (BBIM)

A Case of a Sour Note in a Sad Tale


Like Grimm's Bremen Town Musicians, Bremen Bancorp has clearly outlived its usefulness. If only it would be as wise, and leave the work to fitter hands, too! If this farm can get a premium to book value in a sale, then Shareholders should be able to reap a reasonable harvest and double their money once the animals have gone. Is it too much to hope that Fruend will pick up his instruments and titles and retire happily elsewhere like the original Bremen Town Musicians?

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

Prospective Buyers
Enterprise Financial Services, Clayton, MO (EFSG)
Pulaski Financial Corp, St. Louis, MO (PULB)
Southern Bancshares, St. Louis, MO (private)
Financial Snapshot
as of as of 09/30/2014

Total assets:
$203M
Tangible book value per share:
$95.90
NPAs to assets:
4.06%
Price to book:
52%
Market cap:
$6.4M
Dividend yield:
0%
Trailing 12-month return on assets:
- 4%
Trailing 12-month return on equity:
- 45.7%


Scoundrels
Carl J. Fruend, Chairman, President, CEO
Charles W. Nobe, Treasurer
O. William Wing, Senior Vice President
Red Flags
Notes I find particularly SOUR in this band's song:

  • Marketing Bremen Bank as the "safest bank" around when it's down to 6.5% tangible common equity to assets is sharply off-key.
  • Fumbling with 4% NPAs this far into the Recovery shows this band can't keep the beat.
  • Dissipating 45% of shareholder equity over a five-year period is enough to cause bitter break-up of any band.
Things I find a bit SAD in this band's tale:  

  • Observing a nearly 150-year old institution outlive its usefulness for shear want of taking care of itself is sad.
  • Picturing the other members of the Bremen Bank band having to work under a leader who feels compelled to hoard the three most important titles and roles in the company is sad.
  • Considering the low note on which it will leave 68-year old Carl Fruend's professional legacy if he chooses not to face the music is sad.
Sources
  • Confidential interviews with shareholders

Commercial National Financial Corp, Latrobe, PA (CNAF)

A Case of Sweet Pickings in Mister Rogers' Neighborhood


Here's one bank stock ripe for cherry picking investors! CNA Financial offers just about everything one could hope for in a bank stock—it's cheap, performing well, managed well, pays a huge dividend, enjoys substantial insider ownership, and offers acquisitive neighbors a sweet prospect. What else would one expect from the town that produced Arnold Palmer, Mister Rogers, and the banana split?

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

Prospective Buyers
CNAF is the most trusted community bank in three Westmoreland County, PA cities — Latrobe, Pleasant Unity, and Ligonier, in which these fine banks also do business:
First Commonwealth Financial, Indiana, PA (FCF)
F.N.B. Corp, Pittsburg, PA (FNB)
S&T Bancorp, Indiana, PA (STBA)
Financial Snapshot
(as of 09/30/2014)

Total assets:
$397M
Tangible book value per share:
$19.76
NPAs to assets:
0.02%
Price to book:
109%
Market cap:
$61.8M
Dividend yield:
4.8%
Trailing 12-month return on assets:
1.6%
Trailing 12-month return on equity:
12.5%
TARP:
$0

Luminaries
George V. Welty, Chairman
Gregg E. Hunter, Vice Chairman, President and CEO
Thomas D. Watters, Executive VP and CFO
Gold Stars
As far as community bank stocks go, CNAF is mostly sweet as a banana split.

  • Trustworthy people. The managers at CNA Financial sure seem like the modest Mister Rogers sort that you'd want to be your neighbor. Seasoned bankers, they pay themselves well below industry average and exhibit an attitude of "right relationship" with shareholders, probably because they themselves hold over a quarter of outstanding shares and will only reap what they sow.
  • Consistent performance. Commercial National has been making money since 1934. Even during the Great Recession, its NPAs never got to 1%, and the bank never needed TARP. If my research is accurate, only six other publicly traded banks pay a higher dividend.
  • Solid, fee-based income stream. Commercial Bank & Trust earns nearly a million dollars a year from its $150M trust business. Prospective acquirers that reach into stronger markets will no doubt appreciate the significant excess capital this makes available for lending.

Like the best cherry or "Arnold Palmer," there's just enough of a sour note here to make this stock pick tasty.

  • Low growth market. The population of Westmoreland County, PA has declined every year since it peaked at nearly 400,000 in 1980, which likely explains why CNA Financial both holds more in securities than in loans and is priced for picking. 

Sources

UPDATE: Harvard Savings Bank, Harvard, IL (HARI)

Oh, what a blow Duffield J. Seyller III has dealt to America's trust in Community Banking. It's been over a year since my initial review of Harvard Savings Bank, child of Harvard Illinois Bancorp, and I'm sorry to say, in that time, the condition of the institutions has gone from bruised to battered.

To his list of reckless behaviors, Seyller has added an almost unbelievably rash investment debacle that put over $18M at risk and plummeted HARI stock 60% since last April's annual shareholder meeting. What will it take for this guy to let Harvard go to someone who knows how to treat a bank, its owners, and the public trust right?

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

Prospective Buyers
First Midwest Bancorp, Itasca, IL (FMBI)
Standard Bancshares, Hickory Hills, IL (private)
Wintrust Financial, Rosemont, IL (WTFC)
Financial Snapshot
(as of 06/30/2014)

PLEASE NOTE: While the numbers here reflect Harvard's most recently reported financial condition, they do not account for significant losses associated with the bank's misguided investment activities.

Total assets:
$171M
Tangible book value per share:
$24.77
NPAs to assets:
2.4%
Price to book:
29.1%
Market cap:
$6M
Dividend yield:
0%
Trailing 12-month return on assets:
0.4%
Trailing 12-month return on equity:
3.6%
TARP:
$0

Scoundrels
Same three characters as a year ago, but oddly, each in a different role.

Duffield J. Seyller III, Chairman
Donn L. Claussen, President and CEO
William D. Schack, Vice Chairman of the Board
Red Flags
Maybe I've been too hard on Duffield J. Seyller III. He is not without his talents. I'm just not sure they're of the sort most folks would find consistent with good old-fashioned Midwestern American Community Banking values.

Duffy is a pretty skilled pick pocket! Don't let his pretentious anti-shareholder rhetoric fool you: this stealthy guy grew his own wealth by some $1.2M in compensation over the past five years — a whopping 80% of the company's entire reported earnings — while leaving a mere $260K or so for the institution and its shareholders.

Duffy can pick a fight as well as a pocket! In fact, it's looking like we can count on him to fight even the most senseless of battles "to the bitter end," even if it means taking an 80 year old institution down with him. Duffy's already blown some $800K of the bank's assets just to deny Harvard's largest shareholder the right to representation on the Board and a say in how the institution and its funds are managed. Duffy's fight has brought the bank to the brink of death.

Duffy isn't afraid to bet the bank! He can't be accused of any average, conservative small town banker mindset, that's for sure. Duffy risked $18M — (14% of the deposits the community entrusted to the bank and 88% of the bank's entire shareholder equity!) — in a pool of what turned out to be non-existent-even, way-out-of-state securities promising too-good-to-be-true yields of prime plus 150%. And since Harvard's deposit base wasn't big enough to cover it, Duffy made an even bigger gamble, borrowing $8.9M from the Federal Home Loan Bank to help fund the "investment."  

Duffy is one proud man! He'd rather see the bank die than let it go in a sale to new owners who'd treat it more tenderly. And Heaven Forbid, he let his most concerned shareholder-owner come in close enough to help the poor battered institution heal and avoid further life-threatening injury. Or
maybe Duffy simply missed that day in Sunday School when the rest of us learned that Pride Cometh Before the Fall (Proverbs 16:18).

Sources

UPDATE: Community West Bancshares, Goleta, CA (CWBC)

What a difference a few years (and some decent leadership) can make! Since my May 2012 review, Community West Bancshares has shifted from losing money to making money, cut its NPAs in half, and seen its regulatory consent orders lifted. CWBC stock is still trading below tangible book — so were the bank to sell at 1.5x book as currently trending in Southern California — today's investor could net a 50% return.
Disclosure: As of this posting, I own shares of CWBC and may subsequently either dispose of them or purchase more.

Prospective Buyers
PacWest Bancorp, Los Angeles, CA (PACW)
Umpqua Holdings, Portland, OR (UMPQ)
AmericanWest Bank, Spokane, WA (private) 
Financial Snapshot
(as of 06/30/2014)

Total assets:
$557M
Tangible book value per share:
$6.90
NPAs to assets:
2.9%
Price to book:
96%
Market cap:
$54.1M
Dividend yield:
1.2%
Trailing 12-month return on assets:
1.63%
Trailing 12-month return on equity:
13.3%
TARP:
$7.8M*
*US Treasury resold CWBC's $15.6M TARP 12/3/2012. $7.8M was redeemed 6/20/2014. $7.8M remains outstanding. 
The Crew
William Peeples, Chairman
Martin Plourd, Acting President and CEO
Robert Bartlein, Vice Chairman
The Skinny
Good News. 
  • Happily, my concerns about CEO Marty Plourd have proven to be unfounded — he has done an excellent job returning CWBC to profitability
  • NPAs are down from March 2012's 6.9% to today's 2.9%
  • Consent agreements with both the Federal Reserve and the Office of the Comptroller of the Currency have been lifted
  • CWBC stock has recovered from 2012's low price of $1.35 per share and the bank is back to paying common stock dividends
  • Insiders Baltuskonis, Bartlein, Onnen and Stovesand are purchasing shares in the open market
Sad News. 
  • COO Michael Phlaum passed away this July due to complications of a stroke
Bad News. 
  • Although the stock has recovered nicely to today's $6.60, shareholders would have done much better with a 2012 sale to PacWest for book value, as PWBC shares have more than doubled
  • Chairman Peeples and CEO Plourd must not think there's more immediate upside, for they both sold some of their shares recently
  • CWBC's current profitability is still insufficient to justify remaining independent 
Sources

Community Bank of Bergen County, Maywood, NJ (CMTB)

A Case of Another Late Bloomer


There are times when average looks pretty darn good. As with Ameriserv Financial (ASRV), which I wrote about in January, the Community Bank of Bergen County may be just average, but it is priced way too cheaply and positioned too beautifully to be overlooked as a stock pick.

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

Prospective Buyers
The three healthy branches that make up the Community Bank of Bergen County would make an attractive addition to any buyer's bouquet, particularly for institutions like these, which have overlapping branches:
Boiling Springs MHC, Rutherford, NJ (private)
Clifton Bancorp, Clifton, NJ (CSBK)
Oritani Financial, Township of Washington, NJ (ORIT)
Financial Snapshot
(as of 06/30/2014)

Total assets:
$289M
Tangible book value per share:
$14.58
NPAs to assets:
2.51%
Price to book:
50.9%
Market cap:
$12.9M
Dividend yield:
0%
Trailing 12-month return on assets:
0.12%
Trailing 12-month return on equity:
1.53%
TARP:
$0

The Crew
Marianne Byrne, Chairman (Chairwoman)
Peter Michelotti, President and CEO
Raymond Zachmann, Executive VP and CFO
The Skinny
This is a pretty good bank that's getting better. The Community Bank of Bergen County successfully reduced NPAs from 7% in 2011 to today's 2.5%, while holding equity stable at $25M.

CMTB is the rose of Rochelle Park and daisy of Maywood. In its single Rochelle Park branch, CMTB holds $96M in deposits —the largest share of any bank in town. Its branch in Maywood, NJ is the second largest in town, boasting $126M in deposits.

An acquiring bank could make money here. Assuming the requisite efficiencies for a merger, an acquirer could pick up this beauty for 125% of book and dress up its own book value and earnings.  

Any investor can make money here! You won't find many banks like this left in the field today, trading at less than book value despite their freshly tidied loan portfolios. Trading now at 54% of book, CMTB offers plenty of upside for the enterprising investor.
Sources

Banc of California, Irvine, CA (BANC)

A Case of Sticking it to the "Sugar" Man

What more can I say about Steven Sugarman's slippery hands in the Banc of California cookie jar than PL Capital already has in recent 13D filings? Isn't it high time these Scoundrels stop sweetening their salaries and start "Cleaning Up" like Sugarman's apparent doppelgänger and hero Barry Minkow's purporting to do?

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

Prospective Buyers
City National Corp, Los Angeles, CA (CYN)
PacWest Bancorp, Los Angeles, CA (PACW)
Zions Bancorp, Salt Lake City, UT (ZION)
Financial Snapshot
(as of 03/31/2014)

Total assets:
$4B
Tangible book value per share:
$9.94
NPAs to assets:
0.81%
Price to book:
89.3%
Market cap:
$291.8M
Dividend yield:
4.4%
Trailing 12-month return on assets:
0.0%
Trailing 12-month return on equity:
-0.03%
TARP:
$0M*
*Redeemed $19.3M 12/15/2010
Scoundrels
Steven A Sugarman, Chairman, President and CEO
Chad T Brownstein, Vice Chairman
Ronald J Nicolas, Executive VP and CFO
Red Flags
These Scoundrels have crushed tangible book value at BANC like a stale cookie from $18.47 in 2009 to today's crummy $9.94

Decline in TBV per Share at Banc of California

BANC officers are compensating themselves like kids on a sugar high at a rate running almost seven times the national average and performance of banks like Royal Financial, for the "service" of producing over $2M in losses

Bank Board of Director Compensation vs Reported Profits 2013 RYFL, BANC, national average
BANC ringleader Steven Sugarman bears too many uncanny resemblances to Barry Minkow for my comfort, including behavior sharply inconsistent with the books they author

Books on Corporate Fraud by Authors Steven Sugarman and Barry Minkow


Sources

California Bank of Commerce, Lafayette, CA (CABC)

The Case of an All Star Team in a Hot Market

How's this for a steamy bank stock pick? California Bank of Commerce may have opened its doors at the most inopportune of times in the Fall of 2007 at the onset of the Great Recession, but under the skilled leadership of founding CEO John E Rossell III it didn't even get singed. CABC's book value has grown 48% since 2010. Another four-year surge like this and it will reach $15.45. If CABC sells for twice book like the inferior Virginia Heritage (VGBK) just did, the stock could fetch a toasty $31. Tssss!

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

Prospective Buyers
Personally, I'd prefer to see this all star team keep stoking it up on their own, but were I one of these area banks, I'd sure be coveting CABC's deposits.
Bank of Marin, Novato, CA (BMRC)
Opus Bank, Irvine, CA (OPB)
Westamerica, San Rafael, CA (WABC)
Financial Snapshot
(as of 03/31/2014)

Total assets:
$373M
Tangible book value per share:
$10.44
NPAs to assets:
1.22%
Price to book:
104%
Market cap:
$46M
Dividend yield:
0%
Trailing 12-month return on assets:
.77%
Trailing 12-month return on equity:
9.6%
TARP:
$0M*
*Redeemed $4M 9/15/2011
Luminaries
Stephen A Cortese, Chairman
Terry A Peterson, President and CEO
Virginia M Robbins, Executive VP and COO
Gold Stars
An all-star team! Clearly with folks like these in charge, the California Bank of Commerce has the steam it needs to power and support growth:
  • CEO Terry Peterson founded Charter Bank in Bellevue, WA in 1998, grew it to $322M in assets and sold it nine years later for 3.2x book value
  • Commercial Lender Rick Harbaugh brings long-standing business relationships from his 15 years experience as a mid-market lender at San Francisco's City National Bank and US Bank 
  • Business Development Manager Colleen Atkinson managed a $250M deposit portfolio at Comerica Bank

$281M in deposits! That's higher than deposits in any other bank branch in Lafayette, CA — more than the...
  • $275M in Wells Fargo's single largest area branch
  • $133M in Westamerica's FOUR local branches, combined
  • $62M in Opus Bank's TWO local branches, combined

In a hot market! California Bank of Commerce is geographically situated in what analysts have argued is America's hottest banking market. In Lafayette's Contra Costa County...
  • Real estate values have rebounded 9% over the past 12 months alone
  • The I-680 Corridor boasts more square feet of office space than the City of San Francisco
  • Available deposits exceed $34B, not counting the $168B in neighboring San Francisco County

Enviable loan growth! Contrast the trendlines of Loans Outstanding at California Bank of Commerce and Westamerica — one of our nation's best-managed and most pristine banks:

Volume of Loans Outstanding
Loans Outstanding at Westamerica (WABC)Loans Outstanding at California Bank of Commerce (CABC)
*Adjusted for $1.2B acquired in County Bank FDIC Acquisition

    Sources

    Bank of Utica, Utica, NY (BKUT, BKUTK)

    The Case of an Odd Duck on the Erie Canal


    Here's a scenario that would really get this duck swimming: Imagine if the Sinnott family were to use $67M of the Bank of Utica's excess capital to tender for 123,000 shares of BKUTK at $545 per share, and then channel the $15M it already earns each year into buying back stock.

    Book value would soar from $667 per share to $745. Earnings would fly from $65 to $111 per share. The stock could plump up to $1,500 in the next few years. And the bank would still have over 10% capital to secure the nest. Wouldn't that be just ducky?

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

    Prospective Buyers
    The one-branch Bank of Utica may be an odd duck, but I'd bet any of these area banks would jump at the chance to line their own nests with its dominant market share — an impressive 24% in Oneida County and 55% in the City of Utica.
    Berkshire Hills Bancorp, Pittsfield, MA (BHLB)
    Community Bank System, Dewitt, NY (CBU)
    M&T Bank, Buffalo, NY (MTB)
    Financial Snapshot
    (as of 12/31/2013)

    Total assets:
    $951.5M
    Tangible book value per share:
    $667.65
    NPAs to assets:
    0.57%
    Price to book:
    67%
    Market cap:
    $112M
    Dividend yield:
    2.65%
    Trailing 12-month return on assets:
    1.62%
    Trailing 12-month return on equity:
    10.98%
    TARP:
    $0M
    The Crew
    Roger Sinnott, Chairman (deceased)
    Tom Sinnott, President and CEO
    Brian Laughlin, Executive VP
    The Skinny
    Let me count the ways that the Bank of Utica is a bit of an odd duck in banking that calls all investors hunting for a value stock to pick it up:
    • It's oddly sized. Deposits at the Bank of Utica top $757M — more than 10x the average one-branch bank's holdings, more than 8x the $90M in deposits at the $88B M&T Bank's huge building across the street, and more than 6x the $119M in deposits at Berkshire Hills Bancorp's 8th largest branch (out of 96) just two blocks away.
    • Its stock is oddly structured. There are only 250,000 shares of stock in this publicly traded bank, of which 200,000 are non-voting (BKUTK). The founding Sinnott family controls most of the 50,000 voting shares (BKUT).
    • It has been family-held for an oddly long time. The Bank of Utica was founded by John Sinnott in 1927, and has been controlled by the Sinnott family without interruption to the present day.
    • It pursues an odd strategy for making money. As Dave Waters pointed out in his own review last October, the Bank of Utica doesn't rely upon lending to make its money like most banks, but upon investing in liquid debt securities. Its 7% loan/deposits is the lowest I've ever seen, and its 25% efficiency ratio is among the best in banking.
    • It is oddly undervalued. If you know of any other bank averaging over 10% ROE and 1.5% ROA for the past three years that trades at a discount to book value and 71% of book value, let me know! I'd sure love to hear about it.
    Sources