Harvard Savings Bank, Harvard, IL (HARI)

A Case of Peculiarly Prestigious Non-Performance

Don't let the three sticks behind the CEO of this bank's name fool you: HARI is no Harvard of the banking industry, and the performance of Harvard Savings Bank is far from worthy of its prestigious name. I, for one, will be buying more stock and voting with the Stilwell Group to wrest control of this bank from Duffield J. Seyller III as needed to either turn it around or sell it.

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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 03/31/2013)	Total assets: $170M Tangible book value per share: $23.88 NPAs to assets: 4.4% Price to book: 58.6% Market cap: $11.6M Dividend yield: 0% Trailing 12-month return on assets: 0.53% Trailing 12-month return on equity: 4.6% TARP: $0M
Scoundrels	William D. Schack, Chairman Duffield J. Seyller III, President and CEO Donn L. Claussen, Executive VP and CFO
Red Flags	The way I see it, Duffield J. Seyller III and friends are behaving like badly bred pitbulls, biting the hands that feed them, instead of doing their job of guarding the business. I give this team at least four sticks, and zero carrots, for: Getting the bank tied up under an MOU. After losing a total of $2.7M in 2008 and 2009, Harvard management was forced to sign an MOU with the Office of Thrift Supervision, severely restricting the bank's opportunities to buy back stock and make other independent bank management decisions.  Letting the bank "go to the dogs." Under Duffy Three Sticks' leadership, HARI earned a paltry 1.9% return on equity from 2010-2012. During the same period, the average thrift of Harvard's size outperformed HARI by a factor of nearly 3x, earning a 5.4% ROE; and the similarly sized, more responsibly managed institution of Logansport Financial Group (LOGN) delivered an 8.6% ROE. Paying themselves extravagantly for trashing the place. Over the past five years, HARI's management team bled a total pre-tax net loss of $1.8M out of the bank. For this pathetic performance, Duffield and Claussen chew off over $200K each per year in "compensation," nearly twice what the high-performing execs at Logansport allot themselves. Blowing money and value on a totally unnecessary dog fight. No honest bank should have reason to disallow its largest shareholder representation on its Board. For the $800K or so Harvard is wasting on proxy battles I predict it will wind up losing in the end anyhow, the bank could have bought back nearly 7% of its outstanding shares, and nearly doubled reported earnings per share. That is, of course, had they not first gotten themselves leashed under an MOU. As you can see from the chart below comparing the two scenarios, Team Duffy's game is killing bank value. How HARI stock could have performed, had Harvard  avoided getting itself under an MOU and not fought Stilwell *According to SNL, the average Illinois thrift trades for 16x earnings
Sources	Harvard Savings Bank website May 2013 10-Q April 2013 Proxy Statement March 2013 10-K SNL Financial

Embassy Bancorp, Bethlehem, PA (EMYB)

A Case of a Dynamic Duo in the Steel City

The two in charge at Embassy sure know how to pack a punch. This is one bank that I believe could get 150%-160% of book value in a sale. If this pair succeeds in growing book value to over $8 over the next three years, a sale would present a really nice opportunity to double one's money.

And given the Chairman's previous experience selling Ambassador to Fulton in 1998, I think it's reasonable to anticipate that the bank will sell when the price is right. That being said, at a discount to book and only 8x earnings, EMBY will almost certainly make shareholders money even if the bank never sells.

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

Prospective Buyers	In addition to the obvious neighborhood heavyweights, F. N. B. Corp (FNB) and M & T Bank Corp (MTB), each of these three banks has good reason to be interested in Embassy, given its 5% share of the deposit market in both Lehigh County and North Hampton County First Niagara Financial, Buffalo, NY (FNFG) - acquiring EMYB would double FNFG's deposit market share in Lehigh and make it #2 in the county Fulton Financial, Lancaster, PA (FULT) National Penn Bancshares, Boyertown, PA (NPBC) - acquiring EMYB would make NPBC #1 in North Hampton and a solid #2 in Lehigh
Financial Snapshot (as of 03/31/2013)	Total assets: $636M Tangible book value per share: $7.07 NPAs to assets: 1.5% Price to book: 95% Market cap: $47M Dividend yield: 0.6% Trailing 12-month return on assets: 0.92% Trailing 12-month return on equity: 12.9% TARP: $0M
Luminaries	David Lobach, Jr, Chairman, President, CEO Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO
Gold Stars	I just love how efficient and committed Embassy is! Just look at how many jobs the two leaders at the helm take on their own shoulders. Here are a few numbers that speak volumes, as well. Employees per branch. With just 70 employees across its 7 branches, Embassy is operating 30% to 90% more efficiently than its peers. M & T has almost twice as many employees per branch (19) First Niagara, Fulton, and National Penn have 30% more per branch (13) Assets per employee. With a whopping $9.2M in assets per employee, Embassy is operating 50% to 100% more efficiently than its peers Fulton has half the assets per employee ($4.6M) First Niagara is managing a third less assets per employee ($6M) National Penn and M & T aren't managing any more, with $5M and $5.7M in assets per employee each, respectively Insider ownership. With insiders owning an impressive 32% of EMYB stock, Embassy managers and directors are 3x to 20x as invested in their bank's success as their peers are in their own Fulton and First Niagara insiders own a measly 1.5% and 2% of their own FULT and FNFG stocks, respectively M & T and National Penn insiders, although wildly beating the average bank's level of insider ownership with 10% and 20% of their respective MTB and NPBC stocks, still fall far short of Embassy's impressive level
Sources	Embassy Bank website 2012 Annual Report 2012 Annual Meeting and Proxy Statement SNL Financial Confidential interviews with shareholders

Community Bankshares of Indiana, New Albany, IN (CBIN)

A Case of the Road Less Gravelled

I love this bank! Since coming public over 15 years ago, Community Bankshares of Indiana has grown nicely from a little $130M thrift to an $800M commercial bank with a diversified loan portfolio.

CBIN stock is cheap no matter how you look at it: price to book value, price to tangible book, or price to earnings. I would guess that a year from now, tangible book could reach $20 a share and we’re likely to see the stock trading for 120% of book or better, paving the way for a nice return if you buy it today.

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

Prospective Buyers	Although CBIN is surely an attractive acquisition target, I believe it should stay independent as long as Management continues to deliver such stellar returns.  MainSource Financial Group, Greensburg, IN (MSFG) Old National Bancorp, Evansville, IL (ONB) Republic Bancorp, Louisville, KY (RBCAA)
Financial Snapshot (as of 03/31/2013)	Total assets: $810M Tangible book value per share: $17.23 NPAs to assets: 2.6% Price to book: 61% Market cap: $53.6M Dividend yield: 2.8% Trailing 12-month return on assets: 0.95% Trailing 12-month return on equity: 9.11% TARP: $0M
Luminaries	Gary L. Libs, Chairman James D. Rickard, CEO and President Paul A. Chrisco, Executive VP and CFO
Gold Stars	I like these people! Although I don’t know them personally, I have a lot of confidence in CBIN's management team. Libs and Rickard have been driving this money-making machine together for more than a decade. Libs has been a Director since 1989, and Rickard has been CEO and President since 2000 CBIN insiders own a whopping 19% of stock, and have made eight separate insider purchases already this year. Which — if you’ve followed my work, you already know — I consider a super strong indicator of future success I like their numbers! Besides being solidly profitable for the past 15 quarters, CBIN: Ranks in the top quartile of U.S. banks in ROE and ROA Has reduced NPAs by more than 60% since they peaked in 2011 Has shown it can effectively acquire other banks — three so far! (most recently, First Federal Bank of Lexington, KY)
Sources	Your Community Bank website 2012 Annual Report April 2013 Proxy Statement December 2012 10-K SNL Financial