As a value investor, the 52 week low list is one of my favorite places to look for new ideas. One of the ways to whittle down that list is to look for stocks on the list that have recent insider buying. Last week, I had three stocks listed, which you can see here. This week, I have three more stocks to take a look at.
As I mentioned last week, insiders sell for many reasons, but they only buy on the open market because they think the stock price will go up, or they want to give the impression they think it will. This week’s list requires a deeper look than usual because all three stocks are small banks. These stocks present an extra level of risk, but if you’re able to understand them and determine if there is mispricing, one or more of these banks could provide an unusually high return. Be careful, and do your research.
Bank Mutual Corp. (BKMU): Bank Mutual is a $207 million bank with 78 offices in Wisconsin, and one in Minnesota. They’ve made significant changes since December 2010 and have taken necessary short term pain to improve their long term position. In December, BKMU made a prepayment of a $756 million Federal Home Loan Bank (FHLB) advance. Because of the interest rate, the bank was experiencing a negative lending spread. Because of this payment and additions to their loan loss reserves, the bank announced a Q4 2010 loss of $1.68 per share. On the positive side, its Tier One Capital Ratio is 9.0%. Even after this payment and the reserve additions, BKMU is considered well capitalized. Book value is $6.84/share and P/B is 0.65.
President David Baumgarten purchased 5,000 shares on February 1 for $4.43. He now owns 61,811 shares. Chairman and CEO Michael Crowley also picked up 300 more shares on February 1 and currently owns 1,709,542 shares.
Suffolk Bancorp (SUBK): Suffolk Bancorp is a $203 million bank operating in Suffolk County, NY. Management has effectively guided the bank through the financial crisis, and earnings have remained positive. Their announcement on January 18 continued this streak, although quarterly and yearly EPS was down because of increases in loan loss provisions and foreclosure expenses. 2010 EPS turned out to be $1.56 compared to $2.35 in 2009. 2010 EPS was their worst showing since 2000.
Their loan loss provisions were increased substantially in 2010, but CEO Gordon Huszagh noted that quarterly reserves trended downward. Their largest set-aside by far was from the first quarter last year. Book value stands at $15.02 and P/B is 1.4. To show you how effective SUBK’s management has been through the years, their average P/B from 2000 to 2010 was an extremely high 3, even hitting a year end high of 3.8 in 2003. Whether they can ever reach those heights again is a good question, but the fact remains they’re trading at less than half times their historical average.
Three directors purchased shares on the open market on January 31 for $21.19. John Stark picked up 118 shares. Susan O’Shea and CEO Gordon Huszagh bought 153 shares each. Additionally, director Edgar Goodale bought 3,000 shares for $21.97 on January 25.
United Security Bancshares (UBFO): UBFO has a market cap of $46 million and performs commercial banking services in California. They should be reporting earnings soon and it will be interesting to see how their full year 2010 looks. For the first nine months they reported EPS of $0.10 and book value of $6.05. The stock price has dropped dramatically since February 1, 18% to be exact, perhaps in anticipation of their next release. I was unable to determine the exact reason for the drop, but it was only on volume of a few thousand, so we probably shouldn’t read too much into it. UBFO is currently trading at 0.5 times book, but I’d like to see their year end results before giving that figure too much credit.
Two directors made recent purchases. Walter Reinhard picked up 4,000 shares at $3.17 on February 1, and Michael Woolf bought 5,000 shares at $3.72 on January 27.