Bank Digest: Where To Find Banks?

by: CompleteBankData

Some of the best places to find investing ideas are in old books.

A few actionable ideas to take a look into include Commercial Bancshares, Plumas Bancorp and others.

Mission Valley Bank is making tremendous strides, but the market doesn't seem to care.

A quick ~1,000-2,000 word read regarding weekly thoughts in the banking space. In this issue:

  • Places to find banks
  • Mission Valley Bancorp - breaking records without the market noticing.
  • Are catalysts hard to justify with community banks?
  • Actionable ideas.

Feel free to follow us for more actionable ideas on banks.

Where to Find Banks?

I often get the question of how I source my ideas. Getting good investment ideas is critical if you are a financial writer. Without a list of 'research-able' companies, generating content becomes challenging.

Ever since I started writing full-time, I have learned more creative ways to source ideas. The main source of data comes from other people, scrounging through OTC lists and blogs. For banks, it's no different. My favorite bank ideas come from other investors or through random lists. However, this past week, I decided to do a few different things to generate ideas.

A good way to find new ideas is through old books. Back before the internet was the beast it is today, investors were forced to get ideas differently. A book I recently bought is the Walker's Manual of Unlisted Stocks:

I am manually going through this book searching through the 500 or so listed companies and creating a list of the ones still around. Since the book is from 1996, a lot of these companies are gone. I am in the R's and have 110 companies so far. A decent amount of these companies are banks and we have started to cover them in a series piece called: 3 Banks From The Walker's Manual Of Unlisted Stocks. I am sure there are more creative ways to find bank ideas like this. I am curious to know if any readers have unique ways?

Twitter is another good source to find bank investments and follow bank investors. Here are some Twitter users I follow:







Seeking Alpha is also a good source for ideas. Some of my favorite ideas have come from:

Green Knight

Yuanxi Zhang

Profit Fan

Celan Bryant

Intangible Valuation

Finally, a few websites/articles worth reading are:

Good Times at Community Banks


Community Banking's Big Investors

Joseph Stillwell Holdings

The ABA on Dodd-Frank and Community Banks

I am curious to know of other resources you guys use in the banking space. Feel free to comment below.

Mission Valley - Growing Yet Unnoticed

Mission Valley Bancorp (OTCQX:MVLY) is a definite bank to put on your watch-list. Don't run out and buy it without a limit order though. The company only trades a handful of times per month - liquidity is a rare creature with this one. If you don't mind illiquid banks though, it may be a decent position to your portfolio.

Back in July, CompleteBankData wrote an introductory article on the bank. The basis of the article was concreted on the bank breaking records, continual improvements in structure and shareholder-friendly actions. Furthermore, there has been a decent expansion in both ROE and ROA, the efficiency ratio continues to fall and NPA/Assets/Loans is falling.

My favorite thing about the bank is the market's total lack of awareness that the bank even exists. For an example, the bank posted its third quarter - which was record breaking - and the market did nothing. Net income was $2,190,000, a 25% increase over the prior quarter. Assets are up, deposits are up and loans are up. Net interest income was flat though - from a rise in interest bearing deposits. However, the bank is performing exceptionally well in the low interest rate environment - especially for a small bank.

The best part is that the market doesn't care. As of this writing, there have been zero trades. I wouldn't be surprised to see zero trades all day. And that's fine with me. I'll take a $16 million market cap bank any day - even if no one else wants it. As long as the bank continues to execute, the economic value will increase.

Catalyst - much harder to justify

One of the reasons why community banks have such a small following is due to the un-excitement in the business model. Many community banks take in deposits, make loans, profit on the spread and that's that. Investors think that is boring. And I agree with them, it is very boring holding a community bank. There isn't any hot technology that will be a function of explosive growth. Community banks are not researching the cure for an incurable disease. They just do what they do best - community banking.

Investing in community banks becomes even more boring when you start buying S&L's. Savings and Loan Associations are the sleepy securities of the industry. Most of the time S&L's don't have an IR Firm, they release vanilla quarterly and annual reports, they do the same thing they do every year - take in deposits and invest in low interest-bearing mortgages.

With the lack of attention from investors and the same boring business model year in year out, you need to have patience with these companies. A lot of the times, these banks can post record earnings (as seen by Mission Valley) and the market won't care. A bank could even increase its dividend, repurchase shares and cut its efficiency ratio and the market may not budge. I think it's safe to say that a catalyst is harder to justify with community banks.

Actionable Ideas

  • Commercial Bancshares (OTCPK:CMOH) is an Ohio holding company for The Commercial Savings Bank. First Defiance Financial Corporation (NASDAQ:FDEF) announced a merger of the bank at $51.00/share or 1.1808 shares of FDEF. At the current price, there is a decent 4.29% spread. The deal is expected to close sometime in the first quarter of 2017.
  • Birmingham Bloomfield Bancshares (OTCPK:BBBI) is being bought out by The Bank of Ann Arbor. The deal is expected to close by the end of the year. With a deal price of $16.50 and a current share price of $16.25, there is a 1.54% spread. The trick is finding liquidity to grab a decent amount of shares.
  • Plumas Bancorp (NASDAQ:PLBC): A bank that is breaking new records every quarter. Profitability continues to increase, the company is expanding, and the bank is well run. For the most recent quarter, the bank had an ROA, ROE and NIM of 1.23%, 16.3% and 4.08%, respectively. This is much higher than the peer and national average. The P/B is around 116% and the P/E is close to being in single digits. Further growth and continual profitability will bode well for the underlying economic value of the bank.
  • Ojai Community Bank: This bank is pretty illiquid but growing with a decent valuation. The P/TBV is around 100% and is the only community bank left in Ventura County. They recently moved one of their locations and have experienced a healthy pick-up in deposits and loan growth. Net income has also grown at a 39% rate YOY and a recent debt raise will allow the company to downstream capital for further growth. At the current valuation, the bank is attractive and if growth continues, the market should eventually pick up on the value.
  • Webster City Financial (NASDAQ:WCFB): The bank has recently converted from a thrift two or so months ago. There is a high capitalization rate that has pressured ROE, but provides balance sheet safety. Even better, the bank has a P/TBV around 75% - giving an investor a significant amount of margin of safety. Finally, the CEO sold a bank in the past and is likely to exit WCFB via sale in the next 5-10 years. Has potential to generate a decent return.
  • Ottawa Savings Bancorp (NASDAQ:OTTW): Another post-converted thrift. The company sold 2,383,950 shares in the conversion at $10.00/share - with a gross offering of $23.8 million. The company now has 3,450,000 shares, putting the market cap at $40 million or so. The P/TBV is around 75-80%. The company has a variety of options now such as jumping into more loans, repurchasing shares, a dividend or a potential buyout when the time expiration ends.

That's the first of hopefully many series in the Bank Digest. Feel free to follow us if you enjoy reading about obscure banks that no one else is covering. Also, don't hesitate to leave a comment below.

Quote of the Day

"When the local people put money in a bank like this, they know that it understands their community and its opportunities. Its loans and activities, in turn, help to further the community's economy." - John F. Kennedy

Disclosure: I am/we are long PLBC, WCFB, OTTW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.