by Tim Melvin | October 14, 2013 8:54 am
I make little secret of my feelings about small bank stocks.
I would venture a guess that small banks have made me more money than any other sector or style during the past 25-plus years of playing in the markets. So, after slugging some coffee and booting up the computer, I was pleased to find I had yet another small bank being purchased at a 50% premium to my recent purchase price as Huntington Bancshares (HBAN) decided to buy its tiny neighbor Camco Financial (CAFI).
This is going to happen with increasing frequency during the next few years, and while many companies like Camco are too small to mention in the media, some bigger small bank stocks also are attractive and will benefit from the takeover trend.
Shares of Kentucky-based Republic Bancorp (RBCAA) have fallen in the past several days after the company announced it would pull out of a deal to buy the banking business of H&R Block (HRB). RBCAA did not comment on why it pulled out, other than to say it was sorry it could not close the deal. Shares are now back at 95% of tangible book value and offer an attractive entry point for long-term investors.
Republic has been expanding recently and now has 45 branches across six states. The bank stock has excess capital with an equity-to-assets ratio of a little more than 13, and the loan portfolio is in solid shape as well. Nonperforming assets are just 1.18% of total assets as of the end of the second quarter.
With RBCAA shares down almost 10% in the past week because of the cancelled acquisition news, this small bank stock is a candidate for purchase once again.
HomeTrust Bancshares (HTBI) has 20 banking offices in western North Carolina — comprising the Asheville metropolitan area and the Piedmont region of North Carolina, as well as one office in Greenville — and about $1.1 billion in total assets. The bank was founded in 2011 and is now the 12th-largest bank in North Carolina. HomeTrust has a little bit of trouble with the loan portfolio, as nonperforming assets are more than 4% of the total, but it has more than enough capital to deal with the problem, as HTBI’s equity-to-assets ratio is over 17. The loan portfolio is skewed toward single-family homes and commercial real estate, so conditions should improve along with housing and the economy.
At 86% of tangible book value, this bank stock is cheap enough to be considered for purchase by investors looking to capture the long-term trend in housing prices.
I prefer to let everyone else worry about the earnings reports of big bank stocks like Citigroup (C) and Bank of America (BAC) — I have no edge there. But in smaller bank stocks, I can position myself far from the crowd and noise of Wall Street and take advantage of the massive changes impacting small banks.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
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