Ohana Pacific Bank, Honolulu, HI (OHPB)

A Case of Asian-American Assets


Immigrants have been getting a particularly bad rap lately, so I feel compelled to highlight cases like Ohana Pacific Bank, where immigrant ingenuity, effort, capital and investment lend value to our communities— in this case, quite literally, in the form of a lending institution.

Ohana's stock is also valuable. Happily, it's undervalued by the market. Investors paid $10 per share when the bank was founded thirteen years ago. Today, you can buy it for $7.65.

Give Ohana Pacific three years and we could see book value approaching $12, earnings over $1 per share, and OHPB trading at $15.

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


Prospective Buyers
Although Ohana Pacific is not for sale and earns enough to remain independent, acquiring it would help one of these banks compete better against First Hawaii (FHB) and Bank of Hawaii (BOH), which combined, control 67% of the Honolulu market.

First Foundation, Inc, Irvine, CA (FFWM)
Orient Bancorporation, San Francisco, CA (private)
Territorial Bancorp, Honolulu, HI (TBNK)

Financial Snapshot
†as of 03/31/2019
Total assets:
$162M†
Tangible book value per share:   
$8.78†
NPAs to assets:
0.1%†
Price to book:
86.8%
Market cap:
$15.8M
Dividend yield:
0%
Trailing 12-month ROA:
0.95%†
Trailing 12-month ROE:
8.22%†

The Crew
Donald Kang, Chairman
James Chungwoo Hong, President and CEO
Nicole Byun, Executive VP, Chief Credit Officer

The Skinny
Honolulu's Asian Americans, especially Korean Americans, have been putting serious money and talent to work in this bank.

Ohana Pacific was founded by Korean Americans who invested $15M to capitalize the bank in 2006.

Korean-American immigrant business owner Donald Kim remained the bank's largest shareholder until his death in 2018.

In 2006, Kim invested $500,000 of his own capital to help launch the bank.

When Ohana Pacific needed additional capital in 2010, Kim and his company (Amkor A&E, Inc) invested an additional $1.6M.

The majority of Honolulu's 400,000 some residents are Asian Americans (54%), and given Ohana Pacific's focus on serving the Korean American market, it's safe to say a majority of the bank's assets are from our Asian American compatriots.

Ohana Pacific has $136M in loans outstanding today—money Asian Americans have put to work in the Honolulu economy.

As you can imagine, I've seen a lot of bank boards. Every director on the board of Ohana Pacific Bank has impressive business credentials, and the high standards to which they apparently hold each other are really remarkable.*

*As evidenced by their recent removal of Ronald Moon. He may have been a State Supreme Court Judge, but that didn't prevent the board from holding him to account as a bank director.

Sources
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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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UPDATE: Parkway Acquisition Corp, Floyd, VA (PKKW)

When I first reviewed Parkway Acquisition Corp in July 2017, I was hoping they'd reach their own projected earnings of $1.01 per share and get the stock trading at $14 by year end 2018.

Instead, Parkway paid $14.1 million in stock to incorporate the assets of Great State Bank of Wilkesboro, NC into Skyline National Bank. They missed their projections, and CEO Alan Funk retired shortly after the acquisition.

Happily, Parkway is still A Case of Better Than Before. PKKW has outperformed the BKX Index by 10% over the past two years. If Parkway's progress pattern holds through 2020, PKKW should earn over $1.30, have a book value over $14, and trade over $15.

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


Prospective Buyers
Skyline National Bank has the same prospects for sale as it did in 2017.

First Citizens BancShares, Raleigh, NC (FCNCA)
National Bankshares, Blacksburg, VA (NKSH)
Union Bankshares, Richmond, VA (UBSH)

Financial Snapshot
†as of 12/31/2018
Total assets:
$680M†
Tangible book value per share:   
$11.03†
NPAs to assets:
1.7%†
Price to book:
90%
Market cap:
$68.3M
Dividend yield:
2.2%
Trailing 12-month ROA:
0.8%†
Trailing 12-month ROE:
7.0%†

The Crew
Thomas M. Jackson, Jr., Chairman
Blake M. Edwards Jr., President and CEO
Laurie J. Vaught, Executive VP and CFO

The Skinny
It's too soon to say whether Parkway's acquisition of Great State Bancorp has added to the value of the combined franchise, but I'm still bullish on this stock.

I see two new reasons to have high hopes for PKKW:
  • The bank recently authorized a buyback which should make book value and earnings accrete even faster. 
  • Skyline National Bank could attract some strong talent and customers disrupted by the upcoming BB&T/SunTrust merger.
As in 2017, I don't expect miracles from this latest acquisition.
  • Floyd County is a low-growth market that has struggled to attract business, which is why 8 out of the 20 branches Parkway now owns are smaller today than they were in 2013.
  • With 206 employees, Skyline National Bank now has $3.3M in assets per employee, but neighboring National Bankshares — which has $5.4M in assets per employee — is still doing more with less.
  • Five Directors from Cardinal's board are still on Parkway's board, including third generation Director Dr. Condruff, under whose watch Cardinal's Bank of Floyd was grossly mismanaged.
    Why I'm not worried the sky's going to fall for investors:
    • At 90% of book value, PKKW is cheap, and there aren't many $700M banks with relatively clean asset quality left that are trading this low.
    • Skyline National Bank is the only bank in four towns and enjoys over 50% market share in two other towns.
    • If the bank underperforms, I believe shareholders will hold management to its 2016 Investor Presentation promise that it would either perform or sell.

      Sources
      • Confidential interviews with shareholders and analysts
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