I follow many thrifts and Teche (TSH) is, in my opinion, one of the best run thrifts in the country. The performance is one that should be studied and emulated. TSH is an 850M asset sized thrift located in New Iberia La. whose CEO is Patrick Little. Patrick and his staff do a great job of balancing the return of capital to investors while growing loans and maintaining a 9.7% equity to asset ratio.
The bank has improved its earnings in each of the last four years. In 2008 the bank earned $2.63, in 2009 $3.36, in 2010 $3.37, in 2011 $3.45 and in the 2012 fiscal year earned $3.51. One might think that with earnings like that the company is taking on excessive risk but the non-performing assets are 1.23% and they have reserves of 1.27% making them adequately reserved.
The TSH dividend has also increased in each of the last four years. TSH has paid out a dividend of $1.37 in 2008, $1.40 in 2009, $1.42 in 2010, $1.43 in 2011 and in fiscal year 2012 they paid out $1.45.
The dividend payout ratio is 41.45% which allows them to retain some of the earnings to build their book value. The tangible book value of $30.38 per share in 2008 has grown to $41.09 per share currently.
To give some perspective as to the metrics for TSH I will compare it to a much larger and well know bank, JPMorgan (JPM). The reason I use a larger bank like JPM is that it is much better known and many investors really do not understand the key metrics in selecting banking stocks.
In today's environment, the most important thing is having enough capital. In 2007 JPM had an equity/asset ratio of just 4.9% and with the unknown risk of asset quality (they had a lot of questionably rated mortgage backed securities on their books) at that time it created a lot of concern from regulators as to the solvency of the bank.
TSH by contrast had an equity to asset ratio of 8.4% in 2007 and was primarily invested in single family homes which the bank itself had underwritten.
My point here is that, for the return, TSH is a lot better capitalized, is building more equity on a percentage basis and returns more capital to investors via the dividend.
Both companies are very well managed, but TSH is pretty much off the radar of most people and too small for many large funds.
Price to Tangible Book
|Equity to Asset Ratio||9.42%||6.17%|
Non Performing Assets
So looking at the chart above we see that TSH sells at a better price to book, pays a higher dividend, and is better capitalized. The loan portfolio is also easier to understand as 63% of their loans are for 1-4 family homes whereas the complexity of risk analysis of a JPM are so difficult to understand that even the CEO of JPM was caught by surprise by one of his traders this year. Owning a company like Teche is a lot like owning a traunch of well underwritten first mortgages.
Teche is a throwback to the model that savings and loans were created for. Patrick and his brother William own over 17% of the bank which demonstrates their commitment to the institution.
TSH has an unusual community reinvestment program which makes small loans to the underserved people in their community. These are small loans and amazingly most are repaid within the terms they were made on. They spend time with underserved people counseling them about credit and actually giving them a chance to experience it.
TSH has liquidity risk and regulatory risk. They also have the risk of being able to take deposits and make profitable loans to qualified clients. It is also much more difficult to hedge a stock like TSH as there are no options sold on it. The 52 week average daily volume is just over 3,000 shares.