Small Bank Newsletter

May 2005

 

1. STERLING BANK (STNJ $10.40) is a community bank headquartered in Mount Laurel, New Jersey. They started the Bank back in 1990 and now have almost $300 million in ass ets and growing. Their latest earnings were $0.39 a share for 2004, up from $0.25 in 2003. Look for similar growth in earnings for 2005. Loan growth was very strong, up 35% in 2004, and 2005 should be no different. They continue to open new locations, now with six, and one new one to open later this year in Voorhees Township. They just increased their cash dividend by 50% from $0.02 to $0.03, payable next on May 23rd, 2005. This shows earnings power is just coming on-line and 2005 will be their best year ever. Insiders own over 26% of the stock and one large shareholder owns 9.26% of the stock, so the float is fairly small. Management pays themselves very fair salaries, no one makes over $200,000.00. Not bad for New Jersey and something we like. The Bank paid a 5% stock dividend in July 2004 and we would look for the same this year. The Bank also did a stock offering raising $7,214,000.00 or 1,150,000 shares sold at $7.00 in 2003. It looks like we have a few sellers from that time in the current market and we would be heavy buyers of the stock, now under $ 10.50. Net interest margins are strong at 3.66%. The Bank had no charge-offs in 2003 or 2004, and non-performing loans are at 0.35%, very low at 12/31/04. Reserves for non-performing should be a little higher, but management seems to be on top of it. They have 2.8 million shares outstanding; again the float is much lower. Their book value is $7.25 a share and the Bank should fetch $25 in a deal 5 years+ out. Buy aggressively under $10.50 and put this one away for the long-run. This one trades very volatile, please buy it slowly.

 

FOLLOW UPS:

1. ATLANTIC COAST FEDERAL (ACFC) announced a $0.05 cash dividend to be paid on 5/2/05 to holders of record on 4/15/05. Buy more under $11.50.
2. BROOKLY FEDERAL (BFSB) new issue out this month and it broke the $10.00 offering price like many others are doing. We like this one, load up under $10.00. Put this one away for 3-5 years in which time they should sell for $20.00+.
3. KEARNY FEDERAL (KRNY) new issue out last month, this one hit the $11.60 area and is now heading towards $10.00; load up also on this under $10.25 for the long-term. Strong New Jersey franchise that could fetch $25+ in 4-6 years.
4. K-FED (KFED) has come down sharply with the whole group, stay with our original price target and buy more under $11 only, and all you can under $10.50. Los Angeles has very limited residential inventory, w ith prices jumping 20%+ again. Sales are down with so few listing. No bad loans here and record earnings for K-FED!
5. NB&T FINANCIAL GROUP (NBTF) continues to buy under $24. A sale would be a much higher price. Employees and insiders own a lot. Very Nice cash dividend while we wait.
6. MELLON FINANCIAL (MEL) keep trading under $27.25 to $27.75 now, lower targets.
7. GB&T BANCSHARES (GBTB) earnings out soon, should also be great, add more under $22.25, now.
"SHORTS" had the best month in years and we would continue to hold them on a select basis, while thrifts and many banks on the long side had their worst month in years. Many new issues are breaking their $10.00 offering price, with some testing the $9.00 area. We have not seen this since 1999. New deals will have to re-priced down, or stay away on m o st. Kearny was increased by 16%, now we see why this was bad, many deals just got very high in price. Remember CBON was increased by almost 10% at the last minute, this was the start of people getting greedy. CBON finally broke under $25 and this is a good buy around this level. Earnings will be out very soon and they should have a blow-out quarter and this could cause a 5-7% jump in the share price in the coming months. Lower any and all our past entry points not listed above by 5%- 10% now. BankNewsletter.com 1 -888-814-7575 5/01/05

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Douglas Hughe s -- Small Bank Newsletter, Hughes Investment Management , can and does take positions, in stocks it recommends.All material Copyright© 1995-2003 by Douglas Hughes. Reproduction of this publication in whole or in part is strictly forbidden.

 

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