Liberty Bancorp (OTCQB:LBCP) is a regional bank based primarily in Missouri. However, this small bank has been able to oversee large growth and has begun strengthening its loan portfolio, getting rid of bad loans and helping to grow its loan portfolio in a sustainable manner. After two successful acquisitions, the company is poised to realize internal synergy and also to see growth in net income.
Liberty Bancorp is based in Missouri, and has locations in Clay, Clinton, Jackson and Platte County. The bank has been recently focused on expansion through a number of acquisitions, which help to make it the strongest in its respective counties. The bank has been busy helping to make sure to grow deposits and to help squeeze the competition out of the counties that it is in. However, the bank has been especially successful in both Clay and Platte counties, owning the highest deposit share of each of the counties.
Liberty Bancorp in April bought the assets and deposits of Patriots bank in Missouri. These acquisitions are very important to the overall growth narrative of the company and helped for them to consolidate their control in key areas. Most of the banks acquired from Patriot were in Clay and Platte counties. This is important as it helps for Liberty to further consolidate its control in those counties. Furthermore, through helping to consolidate the market (and subsequently become the biggest in the market), we should be able to see Liberty continue to drive business towards its banks. What will be key for Liberty is to seize upon the growth in these counties and help to fracture other banks attempting to do business in the counties. Furthermore, the Patriots acquisition is important to the company overall as it brought a rather strong loan portfolio and helped to make Liberty the largest deposit holder in both counties.
The company also completed the acquisition in December of the Northland deposits of enterprise bank and trust. This consisted of the acquisition of one bank, located in Claycomo. Claycomo is in Clay County, which as I mentioned above has been a pivotal region for Liberty's growth. This acquisition in Claycomo should help to further strengthen liberty's hand in the region. Furthermore, the acquisition will help due to the synergies between Liberty's already operating branches in Clay County and the addition of this new branch. It is important to note that shareholders do not have a great deal of insight into this bank, as its earnings are hardly reflected in the overall earnings of Liberty due to the fact that it was acquired less than a month before the annual report. With this in mind, as the company becomes more homogeneous with Liberty the earnings from this bank should grow and should help to contribute positively towards Liberty's net revenue.
The acquisition of the Claycomo bank helps to point to Liberty's overall growth strategy. It has chosen four counties to enter and has decided to focus its efforts on becoming very strong in those four counties rather than necessarily expanding its geographic territory. This is important as it will help for Liberty to derive more synergy from its acquisitions in the area and should make it so that Liberty does not outstrip its resources through expanding too quickly to new markets. Instead, it has chosen to cannibalize the business of other banks in the markets in which it is operating. With this solid backing, it will then expand into other counties once it has thoroughly locked down the four counties in which it is currently operating. Through doing this, it is able to control the competition and more importantly become attractive to a suitor. Anyone looking to enter the counties that Liberty is strong in will have to go through a well established bank in Liberty. For a large suitor looking to enter the area, it will likely be easier for them to buy out Liberty rather than to try to build up a bank in an area in which Liberty is very strong and has a large amount of customers.
With the growth of the company well laid out, it is important to take a look at Liberty's current loan portfolio. What shareholders would ideally like to see is the continuation of loan portfolio growth coupled with a decrease in bad loans. With Liberty, we are able to see this ideal scenario begin to unfold.
Liberty has experienced substantial loan growth year over year. For the year end 2013, it had a total loan portfolio of $356 million, compared to a 2012 year end total of $328.8 million. This is a growth rate of over 8% in the total amount of loans that have been issued by Liberty. When we take a look at the type of loans, we also begin to see more encouraging data out of Liberty. We have seen substantial growth in Consumer loans. While the commercial loans portfolio has seen growth, it is clear that Liberty is shifting its focus towards the consumer loans market.
It is also important to note that Liberty has been able to decrease its preserves for loan losses and has been making overall higher quality loans. Less loans in Liberty's portfolio are suspect loans, or are 90+ days past due. Even more importantly, despite the decrease in past due accounts, Liberty has been able to rapidly expand its loan portfolio. The decrease in the reserves for loan losses coupled with the increase in its overall loan portfolio suggests that Liberty is building an overall better loan portfolio. It is building a sustainable portfolio of safer loans and of loans that are not expected to be as likely to default.
The shift towards consumer loans has some potential implications. Should the economy of Missouri continue to pick up, then the move could be seen as smart as when the economy in the area does well then Liberty should have customers that are able to pay off their loans. If the economy suddenly takes a downturn, it could expose Liberty to more risk. With the overall importance of Missouri's economy to Liberty's loan portfolio, let's take a quick look at how Missouri is doing in the four counties in which Liberty operates.
So far, the unemployment rates in the counties in which Liberty operates have seen a rather large fluctuation. At times, the unemployment rate would be much higher, and at times much lower. However, they are on a general downtrend. This bodes well as the more jobs that are available, the more likely it is that people will be able to pay their loans and in general that is good because then Liberty is able to make money off of its loans.
The final thing that we need to look at in a bank is to make sure that the bank is financially stable. For some banks, the quality of their loans may be improving but it may be too late to turn around the bank. However, in the case of Liberty they do not need to be turned around in the first place. Liberty has experienced a growing loan portfolio and should be able to leverage that into a growing net income over the long term.
Even though Liberty suffered a decrease in net income, it should be able to parlay this into long-term growth. Not only can the company increase its net income through the attempt to gain more of a stranglehold on the market, it should also be able to meaningfully reduce the costs to operate the banks that it recently acquired due to economies of scale, and synergies within the newly formed corporation. If this is true, the mergers will help to fund a new wave of net income growth at Liberty, which will of course help Liberty to be able to further grow its base. This will of course help Liberty to be able to generate more cash, which Liberty has a history of giving back to its shareholders.
It appears as though Liberty is well positioned to continue to grow its cash pile. Despite paying dividends to investors, and its two different acquisitions, Liberty still grew its cash pile by over $4 million. While this may not seem like much, for a bank trading with a market cap of $44.06 million, it is quite a substantial growth considering the market cap.
Liberty's net income will continue to grow as Liberty continues its planned expansion. Through economies of scale, Liberty is poised to reduce operating costs, and likely continue its growth. Liberty is well positioned for financial success heading into the future.
Not very many companies with a market cap of $44 million can say that they pay dividends. However, Liberty does which will help to further de-risk the stock for investors. Liberty is well positioned to take advantage of a growing loan portfolio (that has substantially mitigated risks). As Liberty continues to see the economy improve in the areas in which it operates, so too should Liberty's books. The fact that Liberty has been on an acquisition spree should only further enhance investors' confidence in the long-term plans at Liberty, and in Liberty's plans to grow. Liberty is slowly gaining a stranglehold on its market, and is poised to continue to grab significant market share.
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