First Commerce Bank, Lakewood, NJ (CMRB)

A Case of Growing Too Fast


Rapid growth, rising NPAs, and deposit quality have had me wincing about First Commerce Bank for a few years now.

Fortunately, management has let up on the gas and begun tending to the bank's wounds. I’m swayed by CMRB's cheap price, the level to which its board is vested, and its prospects for sale given the competitive landscape in New Jersey.

If First Commerce Bank addresses asset quality, it could sell for $8.50 within a year and deliver a 50% return over today's price.


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


Prospective Buyers

Any of these larger, area banks could easily pick up First Commerce Bank and proceed to grow safely.

ConnectOne Bank, Englewood Cliffs, NJ (CNOB)
Columbia Financial, Fairlawn, NJ (CLBK)
Lakeland Bancorp, Oak Ridge, NJ (LBAI)

Financial Snapshot
as of 12/31/2018

Total assets:
$962M
Tangible book value per share:   
$5.81
NPAs to assets:
3.96%
Price to book:
97%
Market cap:
$126M
Dividend yield:
0%
Trailing 12-month ROA:
1.31%
Trailing 12-month ROE:
10.25%

The Crew

Abraham S Opatut, Chairman
Donald Mindiak, President and CEO
Abraham M Penzer, Director, largest shareholder

The Skinny

First Commerce Bank pursued a course of dramatic growth after it was recapitalized in 2010.
  • Branches grew from one to 10. (1000%)
  • Assets grew from $67 million to $962 million. (1436%)
  • Deposits grew from $60.9 million to $824 million. (1353%)
  • Loans outstanding grew from $50.4 million to $753 million. (1491%)

Not surprisingly, pursuing growth at this speed resulted in a few scrapes.
  • Over the past decade, NPAs at First Commerce Bank have grown ten-fold, from a very low 0.7% ($3.8 million) in 2010 to 3.95% ($38.2 million) today.
  • The steady increase in the bank's profitability hit a wall in 2016, and has been declining since then.
  • The value of CMRB stock has dropped by 28% from a high of $7.75 in 2018 to today's price of $5.61.
  • It's arguable the bank sacrificed deposit quality for quantity in its haste to grow — 35% of First Commerce Bank deposits are jumbo CDs, and only 12% non-interest bearing.

Still, I have confidence in both First Commerce Bank and CMRB stock.
  • The clock is running out, but the bank is still on track with the ten-year plan Chairman Abe Opatut and former CEO Herb Schneider laid out when they invested their own millions and took the helm back in 2010. 
  • Of all the banks I have reviewed here, First Commerce Bank has my favorite board of directors. As a group, the 15 directors own 25% of the bank — a stake that's worth nearly $32 million today. They take no pay, and no outside director owns less than $1,000,000 of CMRB shares.
  • In short, I believe the board remains wholly aligned and behind the plan to grow First Commerce Bank for sale. I anticipate they will do so as soon as the scrapes heal up. 

Sources

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