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
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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)
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Financial Snapshot
†as of 09/30/2018
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Total assets:
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$217M†
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Tangible book value per share:
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$14.23†
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NPAs to assets:
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0.9%†
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Price to book:
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89%
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Market cap:
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$53.4M
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Dividend yield:
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0%
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Trailing 12-month ROA:
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0.4%†
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Trailing 12-month ROE:
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3.0%†
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The Team
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William J Bocek Jr, Chairman
Joseph M Solomon Jr, President and "Managing Officer"
Philip E Logan, COO
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The Skinny
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Eight Reasons I Believe Chesapeake is a Safe Harbor
- Chesapeake Bank's CEO has done this before! (Solomon successfully grew and sold two banks already)
- 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.
- Solomon runs a tight ship — Cost of Funds at Chesapeake Bank is only 0.6%.
- CBM Bancorp can grow book value simply by buying back stock, and it has the "excess capital" available to do it.
- 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)
- 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.
- Two bank stock investors I admire have significant holdings in CBM Bancorp — Seidman Associates and Stilwell Group.
- 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.
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Sources
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- Confidential interviews with shareholders and analysts
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Hi. Dont you expect also to grow th BV in the coming 3 years?
ReplyDeleteIf they sell at 120% BV , i hope the BV can grow also at ~5% a year?
Hello again iota!
DeleteThank you for reading and commenting. I do think the book value will grow, just maybe not by as much as 5% a year. I used 110% takeout of $15.50 book to get to the $17.00 target. If you are more right than I, and book value grows to $16.50, and CM Bancorp sells at 120%, we'd get $19.80 a share for it. Certainly possible! I've just been being conservative since the whole banking world seems to have repriced lately...
Best of luck, Phil