2 Small Banks to Buy Like Insiders, Activists

Every week I sit down at some point and go through the list of insider buying and selling activity as reported to the U.S. Securities and Exchange Commission (SEC). I find it useful to see where there is buying and if any trends can be determined by the buying and selling of corporate officers and directors.

bankFor instance, when I noticed that insiders at mortgage real estate investment trusts were big buyers of their own shares back around the first of the year, it gave me cause to doubt the then prevalent view that 2015 would be a disaster for these REITs. The year has not been disastrous for REITs, and I have cashed some more-than-respectable dividend checks as a result.

A careful review of insider data can often contain valuable clues about what is going on in the markets and the world.

When I ran my screens looking for companies with insider buys of $50,000 or more this week one trend really stood out. I might just be hardwired to look for good news about small banks given my fondness for these little undervalued institutions, but insiders seem to be still aggressively buying shares of the banks they run.

Since I am heavily invested in small banks, this is giving me even greater conviction about the trade of the decade in community bank stocks.

Cape Bancorp (CBNJ)

Cape Bancorp (CBNJ) has been one of my favorite trades of the decade for some time now. CBNJ just closed an acquisition that expands its branch network and asset base.

Cape Bancorp has been opening loan-production offices in suburban Philadelphia to increase its commercial loan business. Although CBNJ is exposed somewhat to Atlantic City and the economic mess created by the difficulties of the casinos in that town, it also has a vibrant lending business on the barrier island resort towns that are nearby. Cape Bancorp is a large lender to the very healthy commercial fishing business based in the area.

Patriot Financial partners is a private equity firm that shares my fondness for small banks in general and Cape Bancorp in particular. Patriot Financial has a board seat at CBNJ and has been buying additional shares in the open market recently.

CBNJ stock is trading at 92% of book value right now, and I think Cape Bancorp has excellent long-term potential for patient investors. You get paid to wait for good things to happen as the shares yield 2.5% at the current price.

Northeast Bancorp (NBN)

Northeast Bancorp (NBN) is another favored little bank that is seeing insider buying in recent weeks. Northeast Bancorp is located in Lewiston, Maine and has 10 full-service branches and six loan-production offices located in western and south-central Maine and southern New Hampshire.

In NBN stock’s last earnings release, CEO Richard Wayne said:

“With regard to capital, we continue to believe that our shares are undervalued, based on current market prices. Our goal in implementing the amendment to the existing stock repurchase program is to continue to enhance shareholder value.”

Wayne is not just using the Northeast Bancorp’s money to buy stock. He also cracked opened his personal checkbook spending more than $180,000 worth of NBN stock in May. Chief Operating Officer Claire Bean also spent more than $85,000 to add to her stake in Northeast Bancorp.

At 86% of book value, NBN stock is cheap and has big upside potential for patient investors.

Insiders and activists are both still buying small bank stocks. Investors who want to participate in the trade of the decade should do the same.

As of this writing, Tim Melvin is long CBNJ and NBN. He is the author of the Banking on Profits newsletter covering the community bank stock opportunity and the Deep Value Report that seeks out undervalued stocks that are likely to survive until they thrive and capture the value effect that has been proven to beat the market over time.

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