Last week’s article on the manner in which investors wildly over value liquidity was born out of a discussion with a fellow investor who has much great quantitative skills than I do.
Tobias Carlisle mentioned in passing that he had found that the best-performing bank stocks were purchased below book value and also buying back stock. I mentioned that fact in the accompanying video, but I never got around to talking about which cheap bank stocks fit that profile. Today, I will rectify that situation.
Note: These stock are not as liquid as large-cap stocks, which means you should use limit orders when buying and sell shares.
HomeTrust Bancshares (HTBI)
HomeTrust Bancshares (HTBI) has been growing via acquisition and is in the process of expanding into states neighboring it’s North Carolina base. It has operations in South Carolina and Tennessee and have made recent acquisitions to expand into the Virginia marketplace.
Since undergoing a conversion to a stock-holder owned institution in 2012, HomeTrust has done four deals to expand the bank and also just opened a mortgage office in Roanoke Virginia. HTBI stock is cheap, at just 78% of book value, and management has taken advantage of the valuation to buy back shares at a discount. As of the end of the first quarter HomeTrust had repurchased 216,035 share of the 989,183 authorized in February. Since last June, it has repurchased a total of 1,257,280 shares of its stock below book value.
First Financial Northwest (FFNW)
First Financial Northwest (FFNW) is benefiting from the strong economy and housing market in the Seattle area. The bank has seen steady revenues increases and credit improvement for the past few years, and is in a strong financial position right now.
FFNW stock is trading at just 90% of book value, and management has taken full advantage of the share price with stock buybacks. In the last year, management has repurchased more than 10% of FFNW stock and announced an additional plan in April authorizing the repurchase of another 10%. First Financial also boosted its dividend by 25% earlier this year, and FFNW stock yields 1.8% at the current price.
Territorial Bancorp (TBNK)
Territorial Bancorp (TBNK) has 28 branches in Hawaii and is the fifth-largest bank as measured by total deposits in the islands. It is very much a traditional savings bank, as almost the entire loan portfolio is family homes with very little exposure to the more volatile commercial and industrial loans.
Territorial Bancorp completed its fifth buyback program earlier this year, and has repurchased more than 7% of the outstanding shares in the past year. TBNK stock is trading at 90% of book value, so the buyback was a bargain for the bank and its shareholders.
Buying shares of banks that trade below book value and are buying back stock has historically provided very good returns for investors. I think that will be the case going forward, as well.
As of this writing, Tim Melvin was long HTBI and FFNW.