community bank investory - june 2016 · the community bank investor – june 2016 previous report....

The Community Bank Investor – June 2016

The Community Bank Investor Newsletter – June 2016

While I was packing for the beach last Friday the jobs reported was released and confirmed that Janet Yellen does have the worst job in America. As she confidently looked forward to raising rates based on a strong of positive economic news the report came out with the news that only 38,000 jobs were gained, the number of involuntary part time workers went up and the labor force participation rate declined last month. The whole Fed-interest rate game is starting to remind me of a Wile E. Coyote and the roadrunner. Every time they think they have strong enough data to hike rates they run out of cliff and tumble back to reality.

Ms. Yellen spoke at the World Affairs Council in Philadelphia this week and tried to downplay the recent report a bit. She said “Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report. Other timely indicators from the labor market have been more positive. For example, the number of people filing new claims for unemployment insurance--which can be a good early indicator of changes in labor market conditions--remains quite low, and the public's perceptions of the health of the labor market, as reported in various consumer surveys, remain positive. That said, the monthly labor market report is an important economic indicator, and so we will need to watch labor market developments carefully.”

She continued to suggest that rate hikes were on the way saying” My overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy by encouraging further labor market improvement that will help return inflation to 2 percent. At the same time, I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run.” Now, if the data would just cooperate.

SNL Financial had some commentary after the dismal jobs number. Keven Dobbs of the research service wrote “Meanwhile, lenders betting that rates would remain historically low for longer, and as such hold relatively high levels of long-term assets, may have gotten a reprieve from potential rate risk. The head of the FDIC said this week that more community banks, relative to regional and national lenders, are positioned for low rates and, as such, could lag competitors that are more asset sensitive when rates do rise. But analysts and economists said after the latest federal jobs report was released June 3 that ultimately nobody in the banking sector stands to benefit from anemic employment gains. Banks' ability to generate loan growth is dependent on economic activity that is, in large part, fueled by gainfully employed consumers, as Joe Gladue, research director at Merion Capital Group, noted in an interview. Almost anything that helps the economy overall "can't be bad for banks," Gladue said. "What hurts it, hurts banks."

The Beige book was out the day before I left and a always gives what I think is the best over view of banking and real estate market conditions. Overall loan demand was up moderately in all Districts that reported, with the exception of Dallas. Commercial and industrial loans were up in Philadelphia, St. Louis, and Kansas City. Contacts in the Atlanta District indicated that there was strong loan demand, except for the energy industry. In the Chicago District, business loan demand changed little from the


previous report. Residential mortgage lending was up in the New York, Richmond, St. Louis, and San Francisco Districts. The Dallas District reported that overall lending was mixed, whereas the Philadelphia District reported that mortgages and home equity loans were down since the prior reporting period. Bankers in the Philadelphia, Cleveland, and Dallas Districts reported seeing increased activity in auto lending. The St. Louis and San Francisco Districts reported improved credit quality. Contacts in the New York and Cleveland Districts reported lower delinquency rates on the consumer side. Banking contacts from the Atlanta District indicated an optimistic outlook for the remainder of the year.

Real estate is the collateral for most of our banks lending activity and the news there is pretty solid. Construction and real estate activity generally expanded since the last report, and the overall outlook among contacts remained positive. Commercial construction activity increased in Philadelphia, Richmond, and Minneapolis. Strong project pipelines were reported in Cleveland, and some contractors in Atlanta noted one- to two-year backlogs. An uptick in industrial construction was cited in St. Louis, while activity was varied across markets in Boston. Residential construction increased in most Districts but was mixed in Richmond and Dallas, where some markets saw a decline in single-family construction. In Chicago, a slight increase in residential construction was concentrated in single-family and suburban markets. St. Louis contacts reported an uptick in residential construction, and many contacts expected a similar increase next quarter. Multifamily construction continued to grow in many Districts, including New York, St. Louis, and Dallas, but a slowing was noted in Atlanta. In San Francisco, construction of multifamily units continued to outpace single-family units. In Boston, apartment construction remained very active, but related lending slowed among smaller banks.

Commercial real estate activity increased in most Districts that reported. Absorption of space increased in Atlanta and Kansas City, while Dallas reported healthy demand for office space. A decline in vacancy rates and a rise in rents were noted in Chicago and Minneapolis. Contacts in San Francisco said demand for commercial real estate expanded further, particularly in urban areas with robust technology and health care industries. Residential real estate activity increased moderately across most Districts. Home sales were strong in Boston, Cleveland, Kansas City, and San Francisco. Residential sales were positive but somewhat lower in other Districts. Sales for entry-level and other lower-priced homes were particularly strong, according to Chicago and Dallas contacts. Lower inventories of homes were reported by contacts in New York, Cleveland, Atlanta, St. Louis, and Minneapolis and have led to bidding wars in the Richmond District and constrained home sales in Philadelphia. Home prices were reported higher overall; Cleveland contacts said that home prices rose 3 percent year over year. In Philadelphia, home prices were mixed across markets and price categories.

I engaged in a little exercise the other night while watching the Orioles-Royals blood feud on MLB-TV. I went back to 2006-2008 and read the banking and real estate sections of the Beige books for that time. Now, I can document that I did in fact see it all coming and had no bank exposure, or indeed much stock exposure at all as things worsened so I can say this. Anyone who didn’t see all that coming was not doing any homework. The evidence of an ever increasing need for caution is in the Beige Book Reports.

It’s REALLY in the FDIC Quarterly reports. Check out these paragraphs from late 2006:


Net charge-offs in the fourth quarter were $1.7 billion (17.2 percent) below the level of a year earlier when credit-card losses registered a one-time spike. While net charge-offs of credit cards were $2.6 billion (45.7 percent) less than in the fourth quarter of 2005, chargeoffs on all other loans and leases were $910 million (21.6 percent) higher. Among the loan categories with increased charge-offs, residential mortgage loans had a $590-million (197.8-percent) increase in net chargeoffs, commercial and industrial (C&I) loans had a $156-million (12.6 percent) increase, home equity lines of credit registered a $135-million (102.6-percent) increase, and charge-offs of real estate construction and development loans were up by $123 million (455.4 percent).

The industry’s inventory of noncurrent loans (loans 90 days or more past due or in nonaccrual status) had its largest quarterly increase in six years during the fourth quarter. Noncurrent loans and leases grew by $4.2 billion (8.0 percent), following a $3.4-billion (6.9-percent) increase in the third quarter. At the end of December, total noncurrent loans and leases totaled $56.7 billion, a three-year high. Residential mortgages had the largest increase.

Total loans and leases grew by $66.1 billion (0.9 percent) in the fourth quarter, the smallest quarterly increase in almost five years (since the first quarter of 2002). Residential mortgage loans increased by $1.1 billion (0.05 percent), the smallest increase in these loans in three years. Real estate construction and development loans grew by $20.0 billion (3.7 percent), but this increase was a two-year low. Mortgage-backed securities declined by $13.0 billion.

Someone mentioned to me not too long ago that quoting the Beige Book and other economic reports sometimes made for “kinda” boring weekly update reading. That’s very true. Trust me I read pretty much all the reports all the way through and I know exactly how boring they can be. However its “kinda” boring stuff that you damn well better know as a community bank stock investor.

At a recent New Jersey Bank Conference hosted by KBW M&A was one of the top 5 topics of the day. The research service reported “Throughout the day, not surprisingly given the recent CRE pressures and deposit generation challenges, much of the discussions naturally found their way towards M&A. These discussions included a number of company-specific factors, combined with the regional economies CRE growth engine coming under fire and the threat of rising rates looming over wholesale funding heavy banks. Company-specific factors include PFS’s approach of the $10 billion threshold, SNBC’s turnaround story and the value of its DTA, ISBC’s recently announced Bank of Princeton acquisition, and Sterling’s focus on opportunistically acquiring smaller C&I businesses. DCOM and ORIT have a median loan-to-deposit ratio of 143%, and both are in the process of executing deposit gathering strategies, but the task of acquiring core deposits as a mono-line CRE lender is difficult. The potential for long-term difficulties led to discussions of M&A-based solutions, including the acquisition of a deposit rich franchise, the acquisition of a C&I lending franchise where asset restructuring could be done to improve the interest rate positioning, as well as the potential for a sale if no other desirable outcome is achieved. Importantly, management teams were focused on achieving long-term shareholder value and seemed open to all available solutions in order to achieve that goal. “

FIG Partners released a brief look at community bank M&A earlier this month. The research firm said that “Bank M&A got off to a slow start in 2016 impacted by volatility in the equity markets that lead to significant underperformance in the financial sector. As financials began to act better and 1Q16 earnings came in in-line or slightly better than expected, Bank M&A picked up such that YTD 2016 deal announcements are approximately 20% ahead of last year’s pace. Specifically, through May 25, 2016 there have been 108 Bank deals announced up from 89 during the same period last year. Despite this uptick in deal activity, we note pricing and deal size are both down from year ago levels. Specifically, the


average deal size has fallen to $117 Million from $152 Million in 2015 while the average Price to Tang. Book Value and Core Deposit Premium have moderated to 132% and 3.7%, respectively, from 147% and 4.8%. Geographically, the Midwest has been the hottest market accounting for over 50% of all YTD deals followed by the West and Southeast which accounted for 15% and 13%, respectively.”

That is consistent with what I have seen so far. Most deals are occurring at the very smallest banks right now but that should start to increase as the year goes on. We saw most to take over activity in the second half of the year last year and I think that will be the case this year as well.

Tim McCausland, the Chief Administrative Officer for the Orange County Trust Company in Middleton , NY wrote an article last week in the Times Herald Newspaper that also discussed M&A. he wrote” In a general sense, banks can only do well if their customers do well and, since the economy is ticking upwards, banks have been able to tick along, as well. However, since we have emerged from the malaise of the Great Recession, ticking along has not been enough for many banks to overcome the twin pressures of low interest rates and regulation. It just does not work anymore. For some, the decision is “It’s time to toss the keys on the counter and let someone else do their best with the assets we have developed in our community.” Now, with valuations improving, the inclination to “get out” may grow even stronger for many small banks. For banks that want to fight through and remain part of the communities they serve, the only alternative is to grow. There is simply no other way to avoid the M&A machine.

The Wall Street Journal has had a big focus on banks this month and reporter Gabriella Fine had a nice piece titled “Small Banks Are Doing Well, So Why Aren’t They in Better Shape?” Ms. Fine writes that “Community bankers are struggling under new regulations. But they also are in their best shape in years. Those contrasting accounts summarize the fate of community banks since the financial crisis. Big banks’ woes have created opportunities for small banks, which, for example, are buying branches that big banks are shedding. At the same time, community banks maintain that they are being hurt with regulations enacted with big banks in mind. Even with their recent success, community banks say, they have been slower to rebound from the crisis than their bigger brethren.” She quotes ICBA President Camden Fine as saying ““It’s a hell of a lot better than it was 2010 to 2012, but it’s still not where it was” in 2004 to 2006.”

The FDIC Quarterly Banking Profile was released this month. Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $39.1 billion in the first quarter of 2016, down $765 million (1.9 percent) from a year earlier. The decline in earnings was mainly attributable to a $4.2 billion increase in provisions for loan losses set aside to recognize potential future loan losses and a $2.2 billion decline in noninterest income. The increase in loan-loss provisions is primarily attributable to rising levels of troubled loans to commercial and industrial borrowers, particularly in the energy sector. The decline in noninterest income reflects weakness in trading income at a few large banks, as well as lower income from asset servicing. Of the 6,122 insured institutions reporting first quarter financial results, more than half (61.4 percent) reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable in the first quarter fell from 5.7 percent a year earlier to 5.0 percent, the lowest level since the first quarter of 1998. FDIC Chair Martin Gruenberg commented on the report saying “"The mixed first quarter results reflect an evolving economic environment," Gruenberg said. "Revenue increased from a year earlier and loan balances expanded at the highest 12-month rate since 2008. However, a prolonged period of low interest rates has narrowed margins and caused some institutions to reach for yield. More recently, low energy prices have led to a sharp increase in noncurrent loans to oil and gas producers. We will continue to monitor closely the evolving environment in which the U.S. banking industry is operating. And we will remain vigilant in our supervisory activities."


It was even better for community banks. Aggregate net income of 5,664 FDIC-insured community banks totaled $5.2 billion during first quarter 2016, up $353.6 million (7.4 percent) from the year-earlier quarter. Improved revenue from net interest income and noninterest income was offset in part by higher loan-loss provisions and noninterest expense. Net income at noncommunity banks was down $942.4 million (2.7 percent), led by a few large noncommunity banks. Over the past 12 months, almost 62 percent of community banks improved their net income, while 5.1 percent were unprofitable during the quarter. Pretax return on assets was 1.28 percent, up 3 basis points from the same 2015 quarter, but 14 basis points below the rate of noncommunity banks (1.42 percent). There were 71 fewer community banks than in fourth quarter 2015, with one bank failure. Note that means that 70 banks were merged out of existence in the quarter.

Community banks reported net interest income of $17.5 billion during first quarter 2016, up $1.3 billion (8.2 percent) from first quarter 2015. With nearly 78 percent of them increasing their net interest income, the annual rate at community banks exceeded that of noncommunity banks (7.2 percent). The yearly increase in net interest income for community banks was led by non 1-to-4 family real estate loan income (up $747.6 million, or 10.5 percent).1 Net interest margin (NIM) of 3.56 percent for the quarter was up 2 basis points from the year earlier, as asset yields increased (up 2 basis points) and funding costs remained unchanged. NIM at community banks was 53 basis points above that of noncommunity banks.

With the exception of commercial and industrial loans credit quality improved agan in the quarter. The noncurrent rate of 1.1 percent was 22 basis points lower than a year earlier, as all major loan categories, except for commercial and industrial loans, had lower noncurrent rates. The commercial and industrial noncurrent rate (1.2 percent) increased for a third consecutive quarter. The rate was 10 basis points above the previous quarter, and 13 basis points above first quarter 2015. The commercial and industrial noncurrent rate for noncommunity banks (1.24 percent) was 4 basis points above the rate for community banks. The net charge-off rate for community banks was 0.1 percent for the quarter, the lowest rate since first quarter 2006. All major loan categories, except for commercial and industrial loans (up 6 basis points), had lower net charge-off rates from the year before.

The Cliffs notes version of my trip to Dallas for the Bank Director Grow the Bank Conference is that banks need to grow in order to gain scale and deal with rising regulatory and technology costs. They are looking to partner with Fintech companies to gain cost saves and generate new business and although many see banks and fintech as competitors the truth is they need each other. In a world of low net interest margins and slow economic growth acquisition is still the most efficient way to achieve the needed growth. Banks that do not have the ability or the cash to compete in todays mobile and digital world are simply going to have to sell.

No one expects higher rates to ride in and save the day. The consensus was that we may see one, possibly two quarter point rate hikes this year but the economy was not really strong enough to justify a consistent string of hikes at this point. There are some data points that indicate the second quarter will be better than economically anemic first quarter but we still won’t break 3% GDP growth this year. The jobs market is just okay as we are generating jobs but they aren’t good jobs and we still have a lot of people out of the labor force. I think that unless we get some horrid data in the next few weeks the Fed will hike in June and the markets reaction to that hike will be a huge determinant of future 2016 rate hikes. Net interest margins are not likely to improve substantially any time soon. Even if rates start to move higher there are a lot of loans made in the past few years that will remain on the books dragging down net returns.


FDIC Vice Chairman Hoenig gave a speech to the National Association for Business Economics in Paris last week. He addressed the idea of capital levels of the banking industry. He opened his remarks by saying” The market no longer determines what adequate capital for the banking industry is. Following generations of taxpayer support and ever-expanding government involvement, politicians, regulators, and lobbyists have supplanted the role of the market in determining what counts as capital, how it is calculated, and how much is enough. An artificial capital framework has thus developed, which has resulted in steadily lower levels of capital and declining quality—even blurring the distinction between debt and equity. Unfortunately, recent experience has shown that when the marketplace does finally realize it cannot trust such a framework, the consequences for the banking industry and the global economy can be dire.” The higher the capital banks are required to hold the lower the returns in equity that can be earned.

This actually plays well for us. Most of our smaller banks have higher than average levels of equity capital and that makes them decent targets for mid-size banks feeling some pressure from regulators to boost capital on their books.

In the recently releases KBW Quarterly loan trends report is it was noted that quarter over quarter total loans at US banks grow by 1.3%. However the larger banks lagged the pace as the universal banks and large regionals were quite sluggish while the small and midsize bans had growth of 2.4% with community banks leading the way with 3.5% growth. Yea rover year loans grew by more than 7% marking the 18th consecutive quarter of year over year loan growth. Once gain the small and midsize bans led the way with year over year growth of about 13.5%. All loan categories grew except home equity loans that shrank as the larger banks pull away from that line of business.

KBW also noted that 24 consecutive quarters of improving credit came to an end in the first quarter as the aggregate non-performing (NPL) ratio rose 7 basis points quarter over quarter to 1.01%. Year over year nonperforming loans were lower which was the 23rd straight quarter of nonperforming loans on a yearly comparison. As we reported in the recent Banking on Profits Monthly Consumer and Industrial loans are the weak spot as they had higher nonperforming rates on both a year over and sequential basis. It was the fifth quarterly and 4th annual comparison where nonperforming ratios increased for C&I loans. They are still historically low but the trend bears watching. It is not much of an issue for us as much of the C&I deterioration came from banks with large energy exposure and we simply do not have that in the portfolio.

The DA Davidson Bank Conference took place in May and they published a wrap up report. They said in the report that “In-market deals and cultural fit key considerations on the M&A front. Most of our bank and investor attendees anticipate a pick-up in M&A volume over the remainder of 2016. In-market deals, driving efficiency gains with lower execution risk, is a favored strategy for many buyers. Other strategic considerations, including cultural fit, quality funding, and asset generation platforms are other drivers of M&A interest.

Conditions remain favorable for the community banks. We should see and M&A pickup in the second half of the year and earnings remain strong for most of the smaller banks. While we are seeing a minor uptick in nonperforming loans in commercial and industrial loan portfolios credit remains very strong across most classifications. The Trade of the Decade in Small Banks is still on track to deliver extraordinary long term returns.


Dividend Increases Community banks should be a dividend growth leader for many years now that balance sheets have been restored. With tremendous improvements in credit conditions and high capital levels bank managers are now looking for ways to return capital and shareholders and we are seeing strong increases in payout across the industry.

On May 18, 2016, the Board of Directors of Blue Hills Bancorp, Inc. (BHBK) declared an increase in its quarterly cash dividend on the common stock to $0.03 per share, up from $0.02 per share in the prior quarter, payable on June 15, 2016 to stockholders of record as of June 01, 2016

The directors of First Financial Corporation (THFF) have declared a semi-annual dividend of 50 cents per share payable on July 1, 2016, to shareholders of record at the close of business June 17, 2016. Today's declaration increases the total dividend paid in 2016 to 99 cents per share, a 1.0% increase from 2015 and is the Corporation's 28thconsecutive year of dividend increases.

Hawthorn Bancshares of Jefferson City, MO (HWBK) announced that its Board of Directors approved a quarterly cash dividend of $0.05 per share, payable July 1, 2016 to shareholders of record at the close of business on June 15, 2016. The current cash dividend rate is consistent with the prior quarter. The Board also approved a special stock dividend of 4% payable July 1, 2016 to shareholders of record at the close of business on June 15, 2016.

KeyCorp (KEY) announced that its Board of Directors declared a cash dividend of $0.085 per share on the corporation's outstanding common shares. The dividend is payable on June 15, 2016 to holders of record of such common shares as of the close of business on May 31, 2016. The cash dividend represents a 13% increase compared to the $0.075 per common share paid last quarter.

Republic Bancorp, Inc. (RBCAA), parent company of Republic Bank & Trust Company announced a 6% increase in the Company’s second quarter cash dividends. The quarterly cash dividend of $0.209 per share of Class A Common Stock and $0.19 per share on Class B Common Stock will be payable July 15, 2016 to shareholders of record as of June 17, 2016. The increased cash dividend results in an annualized dividend yield for the Class A Common stock of 3.16% based upon the stock’s closing price on May 17, 2016. “The increase in our dividend demonstrates our continued confidence in executing our business plan and reflects our ongoing commitment to prudent utilization of our capital, while delivering long-term value to our loyal shareholders. I am pleased that our solid financial performance and strong capital position has allowed us to increase our dividend for the 17th consecutive year,” commented Steve Trager, Chairman and CEO for Republic.

Hampton Roads based TowneBank (TOWN) announced that its Board of Directors on May 18, 2016 declared its second-quarter shareholder cash dividend of $0.13 per common share payable on July 12, 2016 to shareholders of record on June 30, 2016. The quarterly common stock cash dividend of $0.13 per common share, or $0.52 per common share on an annual basis, is an 8.3% increase from the previous dividend rate.


New Buy Back Plans Bank of Napa, N.A. (BNNP) announced that it has gained the approval of its shareholders and the Office of the Comptroller of the Currency to implement a stock repurchase program. Under the repurchase program, the Company may repurchase up to $2,750,000 of its common stock, or approximately 10% of the current outstanding shares based on recent trading prices. The repurchase program permits shares to be repurchased in open market or private transactions until the earlier of June 8, 2017 or the Company's repurchase of $2,750,000 of its common stock.

Cornerstone Community Bancorp, (CRSB), the parent company of Cornerstone Community Bank, announced that its Board of Directors has authorized the repurchase of up to 5% of the outstanding shares of the Company’s common stock, or approximately 62,600 shares based on the 1,252,000 shares outstanding as of June 8, 2016.

Provident Financial Holdings, Inc. (PROV), the holding company for Provident Savings Bank, F.S.B., announced that the Company’s Board of Directors authorized the repurchase of up to five percent (5%) of the Company’s common stock, or approximately 397,000 shares. The Company will purchase the shares from time to time in the open market or through privately negotiated transactions over a one-year period depending on market conditions, the capital requirements of the Company, and available cash that can be allocated to the stock repurchase program, among other considerations. The May 2016 stock repurchase plan will become effective once the Company has completed the October 2015 stock repurchase plan, subsequent to purchasing the remaining 126,006 shares available under the October 2015 plan.

Southwest Bancorp (OKSB), a financial holding company, said that’s its board of directors has authorized a new stock repurchase program for one year. The new stock repurchase program authorizes Southwest to purchase up to 5% of its common stock, par value $1.00 per share, outstanding as of the effective date, or 921,000 shares. Southwest has $2.4 billion in total assets with equity capital in excess of $285 million as of March 31, 2016. The new program is effective as of the earlier of the date the company completes its repurchase of all of the shares of Southwest’s common stock that it is authorized to purchase under its current stock repurchase program that became effective as of Feb. 23, 2016; or Feb. 23, 2017,which is the original expiration date of the current program.

SB Financial Group, Inc. (SBFG) a diversified financial services company providing full-service community banking, mortgage banking, wealth management, item and statement processing services, today announced that its board of directors authorized a new share repurchase program for up to four percent or approximately 200,000 common shares of the Company. The repurchased shares will be held as Treasury shares and will be available for general corporate purposes, including issuance under the Company's employee stock incentive plans. "Our continued improved performance provides us with increased financial flexibility and enables us to evaluate various avenues through which we can allocate capital efficiently and return value to our shareholders," said Mark Klein, Chairman, President and CEO of SB Financial. "This share repurchase program gives us a unique opportunity to accomplish this goal, and we believe that the Company's common shares represent an attractive investment. Further, the Board's authorization of this program demonstrates its confidence in our strategic plan to grow the Company into a high-performing, $1 billion, independent financial services company."

The board of directors of C&F Financial Corporation (CFFI) has declared a regular cash dividend of 32 cents per common share, which is payable July 1, 2016 to shareholders of record on June 15, 2016. In addition, the board of directors has reauthorized the Corporation’s share repurchase program to purchase up to $5 million of the Corporation’s common stock.


Pinnacle Bancshares, Inc. (OTC PINK: PCLB) (the “Company”) today announced that its Board of Directors has approved to replace the Company’s existing common stock repurchase plan, which was extended on November 23, 2015, with a new stock repurchase plan dated May 25, 2016. The prior stock repurchase plan had 4,150 shares remaining for the Company to purchase at its discretion at the time the stock repurchase plan was replaced with the new stock repurchase plan. The new stock repurchase plan is equal to approximately 5% of total shares outstanding (approximately 57,000 shares). At March 31, 2016, the Company had total assets of $224.1 million and total stockholders’ equity of $26.6 million. Robert B. Nolen, Jr., President and Chief Executive Officer of the Company, stated, “Our balance sheet and strong capital position provide us the flexibility to repurchase these shares as a capital management strategy to maximize stockholder value.”

Kearny Financial (KRNY), the parent company of Kearny Bank, said the board of directors authorized a stock repurchase plan to acquire up to 9.3 million shares or 10% of the company’s currently outstanding common stock. The Fairfield, New Jersey-based company also announced the board declared a quarterly cash dividend of $0.02 per share, unchanged from the dividend paid in the previous quarter.

INSIDER BUYING The power of insider data is well known. When insiders buy shares of the company, they oversee it because they believe better times and higher stock prices are ahead. Insider Data is courtesy of the incomparable Jonathon Moreland and Inside Insights.com. The following banks had insider buying in the past month:

Company Ticker Trans # Shares Price/ Trans

Value Traded Tan Bk Price

Bank Of The Ozarks Inc OZRK 571611 15048 2.6 39.22 Century Bancorp Inc CNBKA 334484 7916 0.7 42.55 Old Line Bancshares Inc (MD) OLBK 283551 15770 1.5 18.86 Riverview Bancorp Inc RVSB 257385 54756 1.3 4.79 KeyCorp KEY 239950 20000 1.1 12.41 Seacoast Banking Corporation of Florida SBCF 176923 10850 1.8 16.82 Bankwell Financial Group Inc BWFG 159200 7326 1.2 21.79 Independent Bank Group Inc IBTX 135440 4000 2.1 33.86 BCB Bancorp Inc BCBP 133067 13000 0.9 10.47 Northrim BanCorp Inc NRIM 129494 4859 1.2 26.97 First Internet Bancorp INBK 128650 5000 1.3 25.73 Farmers & Merchants Bancorp Inc FMAO 122905 4300 1.1 28.6 Southwest Bancorp Inc OKSB 107752 6310 1.2 17.18 Poage Bankshares Inc PBSK 102014 6201 0.9 16.64 Bay Bancorp Inc BYBK 89943 17940 0.9 5.03 International Bancshares Corp IBOC 62875 2500 1.3 25.15 West End Indiana Bancshares Inc WEIN 60000 2400 1 25 Malvern Bancorp Inc MLVF 59171 3760 1.3 16.4 MSB Financial Corp MSBF 54027 4140 1 13.05 Edgewater Bancorp Inc EGDW 52638 3396 0.8 15.5


Guaranty Federal Bancshares Inc GFED 47997 3000 1.1 15.99 United Security Bancshares Inc USBI 43510 5002 0.7 8.69 Southern National Banc of Virginia Inc SONA 36803 3086 1.3 12.25 Highlands Bankshares Inc HLND 35142 6400 0.9 5.49 Entegra Financial Corp ENFC 35000 2000 0.9 17.5 CSB Bancorp Inc (Ohio) CSBB 32175 1300 1.2 24.75 Home Bancshares Inc HOMB 30960 750 3.7 41.28 Northwest Indiana Bancorp NWIN 29600 1000 1.1 29.6 Eagle Bancorp Montana Inc EBMT 25200 2000 1.1 12.6 National Bankshares Inc NKSH 24720 750 1.3 32.96 Evans Bancorp Inc EVBN 23910 1000 1.2 24.1 Farmers National Banc Corp FMNB 21265 2344 1.5 9.2 Hamilton Bancorp Inc HBK 21000 1500 0.9 14.25 German American Bancorp Inc GABC 20107 637 1.8 31.59 FNB Bancorp FNBG 19854 687 1.3 28.9 Peapack-Gladstone Financial Corp PGC 19374 1000 1.1 19.38 Consumers Bancorp Inc CBKM 15750 1000 1 15.75 Pacific Premier Bancorp Inc PPBI 14172 600 2.2 23.62 Howard Bancorp Inc HBMD 12950 1000 1 12.95 Kearny Financial Corp KRNY 12790 1000 1.2 12.79 Old National Bancorp ONB 12285 1000 1.7 12.29 First National Corporation FXNC 11647 1200 1.1 9.74 Pathfinder Bancorp Inc PBHC 11600 1000 0.9 11.6 Heritage Commerce Corp HTBK 10778 1000 1.8 10.78 Camden National Corporation CAC 10776 250 1.7 43.1 Premier Financial Bancorp Inc PFBI 10108 600 1.2 16.85 Payment Data Systems Inc PYDS 9200 6150 2.3 1.48 Virginia National Bankshares Corp VABK 9000 375 1 24 Meridian Bancorp Inc EBSB 5015 335 1.4 14.97

How do small community banks survive? Guest Article by Nate Tobik of Completebankdata.com, a web site for bank data and analytics.

I grew up in a suburban area outside of Cleveland, Ohio. There were houses, businesses, and people everywhere. The college I attended and graduated from was Miami University (in Ohio, not Florida). It's located in a very small town in a rural area of Southwestern, Ohio. One of the things I did in college was take epic bike rides through the Ohio countryside. I'd skip classes and ride for hours exploring farms, finding new little towns and just riding to ride. I did all my riding on a mountain bike, which goes to show that when you're young and in shape having the right tool for the job doesn't matter much. On one of my rides I'd pass through a small town named Bath, Indiana. I'm not even sure you could call it a


town, it's more of a collection of houses, a grain elevator, a post office and an enormous bank branch for the Bath State Bank.

Whenever I rode past Bath State Bank I would think "how do they stay in business? Who banks here in the middle of nowhere?" I could never reconcile that a dozen houses and a grain elevator could keep a bank in business, let alone prosper to the level that they did as evidenced by their branch.

Fast forward 16 years and I still wonder the same thing when I pass through small towns with local banks. How can a tiny town with a boarded up business district support two or three local banks? Welcome to the world of small community banking.

There are over 6,000 banks in the US, but the majority of these banks are small. Of the 6,000 US banks only 709 have more than $1b in assets, and 4,808 are under $500m in assets. Even more astonishing 3,189 have less than $200m in assets. We can look even further and find 1,689 banks with less than $100m in assets. Let's walk through the math on how a small bank like this can stay in business using Bath State Bank as an example.

The bank has $143m in assets. They are earning 4.68% on their earning assets and pay .7% to fund those earning assets. This leaves them with a 3.98% net interest margin, the difference between the two values. From this they pay expenses such as salaries, back office expenses and whatever else is necessary to keep the lights on. Bath State Bank was able to earn $1.4m in 2015, which is a reasonable return. The bank generated a 10% ROE, a respectable return for a bank any size, but especially respectable for a bank that has under $200m in assets.

The question isn't "how can such a tiny bank stay profitable?" but rather "why does such a bank exist?" Who are their customers? Where in the world did that $143m come from if this bank is located in the middle of nowhere? This is especially the case when one considers that the median income for most of these rural counties is less than $30,000 a year. How much is someone making $27,000 a year able to save? And how many families with $5,000 and $10,000 in savings does it take to hit $120m in deposits?

If one were to decide today in 2016 that they wanted to create a network of financial institutions to take deposits and make loans across the country I can guarantee that branch locations, and especially branch locations in small population centers would not be the model used. But in the US we are living with the legacy of our past, and the past is the reason for the present.

From the founding of the US until the 1950s banks weren't allowed to have branches. Each bank had its own building and a small town might have a half dozen competing banks, all in their own buildings, all doing business slightly differently. From the 1950s to the 1980s government agencies slowly deregulated the banking industry and allowed branch banking, interstate banking and finally a regulatory banking free-for-all where anything was kosher until it met its end in the Great Financial Crisis of 2008. The pendulum had swung too far, and now we're quickly swinging the other way towards increased regulation.

Banks, like small town hardware stores started where there was a need for their services. If there was a crossroad with a railroad station then there was probably reason enough to consider starting a bank. This was back when pictures were black and white and men chopped down trees and farmed wearing three piece suits. As the banking industry has consolidated from over 14,000 banks in the mid 1980s to the current 6,000 banks a number of rural and small town branches have closed, but there are still many that remain.


While riding the "L" train in Chicago a few months ago I had a bit of an epiphany. For those who've never been to Chicago the "L" train is an elevated public train system. The system is a few stories up and weaves in and out of the city's downtown close to buildings and above the road. While sitting in the train and roaring past apartment and office windows just a few feet from the track a though occurred to me. This system that moves almost a million people a day couldn't have been built today. No citizen of Chicago would allow a train to pass two feet from their bedroom window every five minutes if it were a newly proposed system. But since this is a system that was built when the common good mattered more than the individual good, or when politicians just didn't care what people thought we have a situation where people gladly pay thousands a month for an apartment right on the main drag where window rattling is a feature. This idea of investment isn't limited to public transit, it's most infrastructure in our country, and a lot of small business investments as well. What was easy to build 50 to 100 years ago is impossible to build now. Or if it were to be built now the project would be measured in decades and cost billions. Many of the rewards we're reaping now are a result of investments earlier generations made. How many small businesses are running and turning a profit with machinery that was built in the 1950s and has been fully depreciated for longer than most of their workers lives?

The same concept is true in banking, and even more true with community banking. Up until recently banking was a relationship business. People would build relationships with a local bank for decades and sometimes their entire lives. My step-father-in-law lived in a small town in rural Ohio and still drives 35m out of his way to bank with the local small town bank. He knows the names of everyone at "his" branch. It's a testament to community banking that relationships can be built this strong. The problem is that many banks put in the hard work to build those relationships decades ago and are now on autopilot and have never re-invested in new relationships. There are a lot of very forward-thinking and progressive community banks that are still engaged in relationship banking. They have established themselves inside valuable niches and are a trusted resource for their area. But there are many more that are aging along with their depositors riding on the coattails of yesterdays investment.

Every once in a while I'll check out an older bank branch, or investigate a small town branch just to see what it's like. I can tell when a bank is aging within minutes of stepping into the branch, sometimes I don't even need to enter. These branches are time capsules for when they were built. Want to know what banking was like in 1978? There is a branch around here I can direct you to, it's perfectly preserved down to the carpet. Feeling nostalgic for the 1980s? There are thousands of branches sporting that luxury dark wood panel look where you can rest your body on a nicely worn period chair or couch. For all the mockery the Post Office receives I've never been in a Post Office location that is as badly out of date as some bank's branches.

For a bank to thrive and grow they constantly need to acquire new depositors and generate new loans. From the day a loan is originated it starts to pay itself down towards zero over a fixed length of time. Banking is a race against the clock. Generate enough loans each month to offset principle repayments and generate additional loans to register growth. The same is true for a bank's deposits. Deposits are usually steadier, but they age with their account holders. Older depositors have more money and on average keep higher deposit balances. But eventually these account holders pass away and their money is distributed to relatives, charity or wherever else. Maximizing deposits is tricky for a bank. They want older depositors with higher balances, but they need a constant flow of newer older depositors to counteract aging and death.

It is fascinating to observe an aging bank. This is typically a bank that's in a shrinking town with a shrinking loan book and deposits that are dying and being passed onto heirs. A common thread with these banks is their management is aging along with the deposit base, but they don't know what to do to


fix the situation. The problem is very few executives in their 70s will embrace spending significant amounts of money on iPhone apps or online banking websites. Those things are for kids, not for serious banking like it was done in the 1980s. And speaking of such let me take a slight diversion for a second. If you ever want to reminisce about the good old days I know of no better place than the annual meeting of many community banks. I have found myself caught in conversations with bankers passing around stories from the late 1970s and mid 1980s like they just happened. I'm all for story-telling and great war-stories. But when the only stories are war-stories and the same executives are missing relevant issues of the day it's probably time for them to retire or recalibrate to what's important to the business today. For better or worse the world has changed, and companies need to change with it.

The longer one thinks about this problem of aging banks the bigger the problem becomes. We have thousands of aging community banks in aging areas that don't need these banks anymore. Much of banking can be replaced with a phone. I can deposit a check anywhere my iPhone has coverage. I can transfer money while commuting on the train, or waiting for my food at a restaurant or anywhere. I don't have to be physically present to do any of these activities anymore. A human doesn't need to approve my deposit or withdrawal slip to conduct a transaction. And this technology isn't just limited to customers who live in cities. The US has become so blanketed with wireless and smart phones that anyone anywhere can conduct banking from the palm of their hand.

If a bank doesn't continually re-invest in new relationships then it has lost the only edge it had in business, the local niche. A community bank can be flexible where larger banks cannot, but the bank can only be flexible if they are investing in the up and coming younger generation. The best way to develop a lifelong banking relationship is with a customer when they're younger. Young banking customers are loss-leaders. A teenager with a bank account that rarely has a balance above $138 doesn't generate much in the way of income. But as the teenager grows up, gets a job, starts a family, buys a house, and starts a business they will continue to add banking services and products most likely at the bank they started with, if they're treated well and given an opportunity to grow.

The natural question is what happens to these community banks that are on the edge of retirement? I think eventually what will happen is a larger bank will buy them out, take their deposits and loans, close their branches and move branch banking online. They keep a branch or two in the area that's well lit, updated, and modern.

I want to circle bank and answer my original question "How do small community banks survive?" the answer is "many don't." For bankers, customers and investors I think we're witnessing an interesting time. Since the financial crisis banks have been forced to adapt to a low rate environment. Some have done this very well. But others have decided to blame rates, politics, or the weather for their lack of investing and aging business. We're witnessing what happens when small town banks that refuse to re-invest age themselves out of the market. Many will sell to competitors across the street or across town. And competitors will take what they've learned in the past eight years and turn sleepy deposits into profit engines through IT re-investment, increased cross-selling and other opportunities.

As investors we can profit from being on both sides of the table. By owning aging banks on the cusp of retirement, or by purchasing banks that are buying aging banks. For those that like the cheap flip look for banks trading below book value with elderly executives, shrinking deposits and shrinking loans all while maintaining too much capital. For investors with patience and an eye for quality look for banks that are becoming successful serial acquirers for these retiring banks, buy in and hold on tight.


13D FILINGS We know from the Sterne Agee report released last year as well as practical experience that a 13D filing is a significant event for a small bank stock and, more often than not, leads to higher stock prices in the future.

Joseph Stilwell filed a 13D concerning his 9.4% ownership of HopFed Bancorp (HFBC). He announced that his firm had sent a letter to fellow shareholders. The letter read as follows

Dear Fellow HFBC Owner,

I believe our Bank’s management has been unfaithful to shareholders. In our view, HFBC has broken the most obvious commitment to do right by its owners — paying management fairly for a job well-done. Instead, HFBC management performs poorly, and the Board egregiously overpays them year after year!

Consider:

- Return on average equity has been below 4% for the last 5 years.

- CEO’s pay has been increased by the Board 14 times since the turn of the millennium2 – that’s 15 years! – even though the Bank has performed POORLY!

- CEO has made a great deal of money over the last 15 years while the owners’ returns have remained INADEQUATE!

- HFBC still pays country club dues for the CEO and another executive.

- HFBC still covers the lease payment of the CEO’s car.

Now, HFBC makes cash payments to executives to cover their personal taxes5 — REPUGNANT! When was the last time someone paid your taxes for you?

To make matters worse, HFBC pays consultants to set executive incentives for our POORLY-performing Bank that are comparable to the compensation plans of much better banks.6 Our Bank doesn’t compare!

We believe the Board’s relationship with management is suspect if they can justify overpaying executives who consistently under-deliver.

Sincerely,

Megan Parisi

Focus Stock- Wellesley Bancorp (WEBK) Wellesley Bancorp, Inc. operates as the bank holding company for Wellesley Bank that provides various financial services to individuals, non-profit organizations, small businesses, and other entities in eastern Massachusetts. As of December 31, 2015, Wellesley Bancorp, Inc. operated through an executive office and three full service branch offices located in Wellesley, Massachusetts; one limited service office in Needham; and one full-service branch office in Boston. The company was founded in 1911 and is based in Wellesley, Massachusetts.


Founded in 1911, Wellesley Bank is a Massachusetts chartered cooperative bank headquartered in Wellesley, Massachusetts.They operate as a community-oriented financial institution offering traditional financial services to consumers and businesses in our primary market areas of Wellesley, Boston and the surrounding communities. They attract deposits from the general public and use those funds to originate primarily residential mortgage loans, commercial real estate loans and construction loans, and, to a lesser extent, commercial business loans, home equity lines of credit and other consumer loans. They conduct our lending and deposit activities primarily with individuals and small businesses in our primary market areas. In addition, we also provide investment management services for high net worth individuals, families, businesses, private partnerships, nonprofit organizations, foundations and trusts through our wholly-owned subsidiary, Wellesley Investment Partners, LLC, )Wellesley Investment Partners”) a registered investment advisor.

They conduct operations from our executive offices, three full-service branch offices located in Wellesley, Massachusetts, a community within the greater Boston metropolitan area, one limited service office located in Needham, and one full-service branch office located in Boston. The primary lending market is defined by our Community Reinvestment Act assessment area, and includes the communities of Wellesley, Brookline, Dover and Needham in Norfolk County, the communities of Natick, Newton, Cambridge and Weston in Middlesex County and portions of Boston in Suffolk County. Due to our locations in and around Boston, their primary market area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several investment and financial services companies. The greater Boston metropolitan area also has many life science and high technology companies employing personnel with specialized skills. These factors affect the economic vitality of the region and impact the demand for residential homes, residential construction, office buildings, shopping centers, and other commercial properties in the market area.

Their market area is located largely in the Boston-Cambridge-Quincy, Massachusetts/New Hampshire Metropolitan Statistical Area. Based on the 2010 United States census, the Boston metropolitan area is the 10th largest metropolitan area in the United States. Located adjacent to major transportation corridors, the Boston metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care.

Price to Book Value-87%


Charts courtesy of Bankregdata.com


Recent News WELLESLEY, Mass., April 29, 2016 /PRNewswire/ -- Wellesley Bancorp, Inc. (Nasdaq Capital Market: WEBK) (the "Company"), the holding company for Wellesley Bank (the "Bank"), reported net income of $732 thousand for the quarter ended March 31, 2016, compared to net income of $459 thousand for the same period in 2015. The results for the quarter represent an increase of 59.5%, as compared to the prior year first quarter results. Diluted earnings per share were $0.31 and $0.20 for the quarters ended March 31, 2016 and 2015, respectively. Total assets were $620.5 million at March 31, 2016, a decrease of $701 thousand, or 0.1%, from December 31, 2015 as net loans increased $4.3 million and deposits increased $7.6 million while short-term borrowings declined $10.0 million. A portion of the funds obtained in the Company's issuance of $10.0 million in subordinated debentures in December 2015 were used to pay off maturing Federal Home Loan Bank ("FHLB") advances during the first quarter of 2016.

https://finance.yahoo.com/news/wellesley-bancorp-inc-reports-results-203000389.html

WELLESLEY, Mass., May 25, 2016 /PRNewswire/ -- Wellesley Bancorp, Inc. (Nasdaq Capital Market: WEBK) (the "Company"), the holding company for Wellesley Bank today announced that on May 25, 2016 its Board of Directors approved a quarterly cash dividend to its stockholders of $0.04 per common share, an increase of $0.01 over the prior quarter's dividend, to be paid on June 20, 2016 to stockholders of record as of the close of business on June 6, 2016.

https://finance.yahoo.com/news/wellesley-bancorp-inc-announces-increased-140000370.html

Institutional shareholders

Source-Yahoo Finance


Exchange Bank, Santa Rosa, CA (EXSR) Guest Post from Phil Timyan, a private investor, hedge fund manager, and first-time blogger with over 25 years professional experience in community bank stock investment and shareholder activism.

Exchange Bank, Santa Rosa, CA (EXSR) A Case of a Bank and a Trust Exchange Bank is a good buy you can trust to do good in more ways than one. I can't name a single other billion dollar bank in the country with ROA above 1% and ROE above 10% that still trades at a discount to book value. In the next three years, I expect EXSR will trade above its pre-Great Recession high of $153.72 per share, so I'm buying while the stock is still cheap. And I feel darn good about it, because making money right along with me will be the Frank P. and Polly O'Meara Doyle Trust, which owns 51% of the bank and has been using its own dividends to fund thousands of scholarships for Santa Rosa Junior College students since 1950. Disclosure: As of this posting, I own shares of EXSR and may subsequently either dispose of them or purchase more.

Prospective Buyers Exchange Bank would be an appealing addition to these three institutions operating in the neighborhood, but since I'm a stand for the bank staying independent, I'll just leave it at that.

Rabobank, Netherlands (RABO, on Netherlands Exchange)

Umpqua Holdings, Portland, OR (UMPQ)

Westamerica Bancorp, San Rafael, CA (WABC)

Financial Snapshot †as of 03/31/2015

Total assets: $1.9B†

Tangible book value per share: $96.72†

NPAs to assets: 2.95%†

Price to book: 86.3%

Market cap: $143.1M

Dividend yield: 2.6%

Trailing 12-month return on assets: 1.03%†

Trailing 12-month return on equity: 11.8%†

TARP: $0†*

*Redeemed $43M July 26, 2012 Luminaries William R. Schrader, Chairman

Gary Hartwick, President and CEO Greg Zahn, Executive VP and CFO

Gold Stars Exchange Bank of Santa Rosa, CA has done plenty to earn the trust of its community and shareholders. In particular, it merits a nice row of Gold Stars for: Doing its Founding Father proud. I feel like Frank and Polly Doyle are the true


luminaries in the Exchange Bank story. All too often, family-owned institutions, at best, peter out over the years, or more commonly, fall victim to nepotism and malaise with succeeding generations. In stark contrast, the Doyle Family legacy is a Trust that Founding Father Manville Doyle's son Frank and daughter-in-law Polly specifically designed to keep the interests of the community and shareholders first and foremost for the life of the institution. Doing measurable good in its community. Banks talk a lot about community service, but it'd be hard to find one that tops the good Exchange Bank does every year in its hometown. Since 1950, the Frank P. and Polly O'Meara Doyle Family Trust has used its honestly earned dividends to pay out over $80M in scholarships that have helped some 122,000 students attend Santa Rosa Junior College. In a town whose population doesn't appear to exceed 175,000, it's arguable this bank and Trust have been upskilling an entire workforce! Doing right by its shareholders.Exchange Bank's Managers and Directors deserve special mention here as well. They guided the bank effectively through the Great Recession, have already grown book value by 67% since EXSR's 2009 low, and appear on course to deliver even greater returns — for which those of us who were left holding worthless shares in one or more of the hundreds of banks that failed in that Recession are truly grateful.

Non Owner Occupied NPLs

A guest article by Bill Moreland of complete bank data

BankRegData | May 27, 2016This week BankRegData reviews industry-wide Nonperforming Loan rates (NPL %) along with a deeper look at Non Owner Occupied CRE.NPL % Heat Map: All U.S. Banks.

NPL % Heat Map: All U.S. Banks


A lot here, but we'll start with the C&I category where we see all 3 loan portfolios deteriorating. C&I: US Addresses leapt to 1.29% from 0.79% at the end of 2015. We also see increasing NPL% in C&I: non-US Addresses and Lease Financing Receivables .Farmland and Ag Loans are increasing as well. I'm inclined to be more worried about Ag with the NPL% jumping from 0.44% to 0.70% - a 10 quarter high.1-4 Family, Loans to Individuals, Construction and Multifamily continue to improve albeit some at lower rates than in the recent past. Multifamily is at 0.26% which is near the historical low last seen in 2005.The CRE sub-types of Owner Occupied and Non Owner Occupied both show up in the Heat Map with a grey box indicating marginal change in the rate over the prior quarter. While Owner Occupied is at 1.19% it is the 0.64% of Non Owner Occupied that has caught my attention. Similar to our C&I NPL concerns in July of 2015 I'm going to go on record as stating that I think Non Owner Occupied NPLs have inverted and that we'll see increasing NPLs from here forward. While a little earlier than the C&I call, I'll use the same 3 analytical "tells" that I used earlier.

BankRegData Note: The CRE, C&I and Construction loan sub-categories are part of a recent upgrade to the website. We now have comprehensive data on 20 separate loan portfolios along with associated delinquencies, charge offs and recoveries. The other four loan portfolios not listed in the Heat Map are Depository Institutions, RE in Foreign Offices, Foreign Government and All Other.


For the first time in nearly six years (23 quarters) CRE NPLs increased QonQ with Non Owner Occupied adding $167.74 million.On it's own that might not be of concern, however, note the declining reduction in QonQ drops until finally it increases in 2016 Q1. In 2013 we saw $1.5 Billion drops QonQ, then in 2014 it was $700-800 Million drops and then $600 million in the final 2 quarters of 2015. It's the deceleration in the improvement that indicates a slowing in the decline.In addition to the deceleration and reversal of NPL declines, I am next going to cover 3 reasons for stating that I believe Non Owner Occupied NPLs have inverted: 1) Non Owner Occupied Loan Growth

2) % of Certs seeing a CRE NOO NPL increase

3) % of States seeing a CRE NOO NPL increase

Reason #1: High CRE NOO Loan GrowthThe chart below details Non Owner Occupied and Owner Occupied loan growth since 2012 Q1. Since 2012 Q1 Non Owner is up $164 Billion (27.91%) while Owner Occupied is up just $30 Billion (6.35%).While 27.91% growth in 4 years is not excessively high compared to a number of other loan portfolios (e.g. Multifamily (59.36%) and Auto (38.59%)), the $164 Billion of net additional


In 2012 Q1 NOO was at $588 Billion while Owner Occupied was $470 Billion (a spread of $117.4 Billion). Note how the growth in NOO begins to pull away from Owner Occupied in 2013 and then accelerates across time. As with our C&I concerns, fast loan growth in a short time inevitably leads to accompanying increases in NPLs.

Reason #2: % of Banks seeing NOO NPL Increases is Increasing. The next chart tracks the percentage of banks (certs) that experienced an increase in Non Owner Occupied NPLs over the prior quarter. In 2012 Q2 14.91% of the certs saw an NPL $ increase (also meaning 85%+ experienced a decrease).

Note how the percentage of banks drops all the way to 9.55% in 2015 Q3 and then inverts and starts to climb in 2015 Q4 (10.13%) and 2016 Q1 (10.29%).While 10.29% is remarkable in that the flip means that 89.71% of banks saw a decline in NOO NPLs it's the fact that we now have 2 quarters in a row where there is an increase in the percentage (and #) of banks seeing increasing NOO NPLs.It is this two quarter reversal from extremely low levels that mimics the C&I inversion in 2015 Q1.

Reason #3: # of States seeing NOO NPL Increases is IncreasingWe pre-build a State level Community Bank default peer group for the site which includes all banks <$2 Billion in assets. That dataset makes for an excellent proxy for state level analyses.The table below details the 10 largest states (by # of banks <$2 Billion in assets) and their associated NOO NPL% for the past 6 quarters. For Illinois there are 468 certs below $2 Billion as of 2016 Q1 - note how the NOO NPL% "bottomed" at 1.36% in 2015 Q3 and has risen for 2 consecutive quarters.


Texas appears to have bottomed out in 2015 Q4 at 0.54% and has jumped to 0.63%. Same story with Iowa. Minnesota and Ohio appear to be on a path to continue to decline.The color coding is that Orange reflects a 4.5+ basis point worsening, Blue is a 4.5+ basis point improvement. Yellow and Light Green are 2-4.4 basis point changes. The "# States O/Y" line indicates the number of Orange and Yellow States that experienced at least a 2+ basis point deterioration in the collective NOO NPL%. In 2015 Q2 there were only 8 states that saw deterioration. Note that the number has subsequently climbed to 10, then 11 and then jumps to 18 states. It is this increasing count of states seeing a deterioration in their NOO NPL% that indicates the issue is more widespread than a few states.

This is an earlier prediction in reversing NPLs than our C&I call in mid-2015 and is therefore more subject to being proven false. I don't think that will be the case based upon the evidence listed, however, waiting until consecutive quarters takes away from the value of using the data to get ahead of the curve. You'll note that I'm strictly using growth and momentum trends and have avoided including any macro-economic type of data. I do think, however, that past cycles have shown that issues in C&I do have a tendency to bleed over into other areas pretty quickly. If a business is struggling to pay back a loan they are also probably struggling to pay rent.

Note: the figures in the article may differ from the detail in the links as Call Reports can change. The article is static, the bank data is dynamic.

Focus Stock- Parke Bancorp Inc. (PKBK) Parke Bancorp, Inc. operates as the bank holding company for Parke Bank that provides personal and business financial services to individuals and small to mid-sized businesses. It operates through full-service offices in Northfield, New Jersey; Washington Township, Gloucester County, New Jersey; Philadelphia, Pennsylvania; and Galloway Township, New Jersey. Parke Bancorp, Inc. was founded in 1999 and is based in Washington Township, New Jersey.

The Company is a bank holding company incorporated under the laws of the State of New Jersey in January 2005 for the sole purpose of becoming the holding company of the Bank. The Company commenced operations on June 1, 2005, upon completion of the reorganization of the Bank into the holding company form of organization following approval of the reorganization by shareholders of the Bank at its 2005 Annual Meeting of Shareholders. The Company’s business and operations primarily consist of its ownership of the Bank.


The Bank is a commercial bank, which commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company and the Bank maintain their principal offices at 601 Delsea Drive, Washington Township, New Jersey. The Bank also conducts business through offices in Northfield, Galloway Township and Washington Township, New Jersey, and in Philadelphia, Pennsylvania. The Bank is a full service bank, with an emphasis on providing personal and business financial services to individuals and small to mid-sized businesses in Gloucester, Atlantic and Cape May Counties in New Jersey and the Philadelphia area in Pennsylvania. At December 31, 2015, the Company had assets of $885.1 million, loans net of unearned income of $758.5 million, deposits of $665.2 million and equity of $112.0 million.

Substantially all of the Bank’s business is with customers in its market areas of Southern New Jersey and the Philadelphia area of Pennsylvania. Most of the Bank’s customers are individuals and small and medium-sized businesses which are dependent upon the regional economy. Adverse changes in economic and business conditions in the Bank’s markets could adversely affect the Bank’s borrowers, their ability to repay their loans and to borrow additional funds, and consequently the Bank’s financial condition and performance. Additionally, most of the Bank’s loans are secured by real estate located in Southern New Jersey and the Philadelphia area. A decline in local economic conditions could adversely affect the values of such real estate. Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.

Statistics

Market cap ($) 88,960 Yield on earning assets 5.15 Oreo 20,630

P/E 8.49 Cost of funding earning assets 0.78 TE/TA 10.11

P/B 86.33 Net interest margin 4.40 Net loans/Deposits 107.27

P/TBV 86.33 Return on assets 1.29 Non-interest deposits/Deposits 6.57

Avg volume 4,596 Return on equity 10.50 Loan loss reserve / Loans 2.60

52wk high ($) 14.06 Efficiency ratio 51.05 NPA/Assets 3.27

52wk low ($) 8.45 TCE 83,049 Texas ratio 57.19

Shares outstanding Equity to assets 12.54

Info courtesy of Completebankdata.com


Courtesy Bankregdata.com

Institutional Shareholders


Other Stocks in this issue:

Symbol Company yld p/tbv HFBC HopFed Bancorp Inc 1.29 0.96 TOWN Towne Bank 2.17 1.8 SBFG SB Financial Group Inc 1.99 1.18 THFF First Financial Corp 2.64 1.26 KEY KeyCorp 2.53 1.07 CRSB Cornerstone Community Bancorp 0 0.72 RBCAA Republic Bancorp Inc 2.87 0.99 PROV Provident Financial Holdings Inc 2.68 1.09 BHBK Blue Hills Bancorp Inc 0.61 1.07 BNNP Bank Of Napa Na 1.58 0.9 HWBK Hawthorn Bancshares Inc 1.38 0.9

Key takeaways

The trade of the decade is still an ongoing opportunity

We need to keep an eye of Commercial and industrial Loan Trends

Grow or Die is not a slogan. It is the reality for community banks

community bank investory - june 2016 · the community bank investor – june 2016 previous report....

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