Small Bank Newsletter

July 06

 

1. PARK NATIONAL CORP (PRK $ 93) is a bank holding company, engaged in the commercial banking and trust business in Ohio with over 1,800 employees and 133 offices. Total assets over $5.4 billion, loans over $3.2 billion and deposits over $3.7 billon as of 3/31/06. The stock has been selling off and is currently at the low for the year, something we like, no news, just a big –sell off in the shares, while they may have been over- valued at $140, at $93 it is a buy. Book value is almost $40.00 a share and with net interest margins at 4.37% and a return on average assets at 1.78%, very strong, they are simply worth 3 times book+ in a deal. Insiders own a ton, they will earn $7.00 in 2007, so a P/E of 13 is very fair for the quality of the franchise. The bank has been around for 100 years, their asset quality is among the best and reserves at over 2.10% very strong and the big cash dividend is also nice. Growth seems to be the issue on this one, so maybe they will sell sooner than later. We see tremendous consolidation in the industry in the next few years. They have a footprint someone would want, and management is very frank and for shareholders period. They have only 14 million shares outstanding but it trades plenty, just use limit prices please on down days. It does follow the market somewhat. Even just a buyback or a stock/split would move this one back over $105 in a few days. Look for a 10% return for many years to come from these levels, or 30%+ the day it is sold. Buy all you can under $90.00 and accumulate now heavily under $93.50 Headquartered Newark, OH.

2.PENNSYLVANIA COMMERCE BANCORP ( COBH $ 26.85) has come back to a good entry point, so we had to highlight a # 1 Bank even with them spending too much money on that new building last year. The price of $26.85 is a compelling entry point for new money and to add to positions again, it is back to the same price from 2 years ago with all their growth. (Sound familiar IBCA , ring a bell) . Load up now under $27.50, this one is very thinly traded, buy it slowly with limit orders only. Great bank, not for sale but a great long-term investment if you have 5-10 years, you should make 15% per year. Great one for small investors, very safe, but hard to get any serious money to work, with the low 5 million share float. Headquartered Harrisburg, PA.

 

FOLLOW UPS:

1. CAPITAL SOUTH BANCORP (CAPB) voted to change to a quarterly dividend from a semi-annual dividend of $.06 a share, a 20% increase, also offered earnings guidance of $1.00 a share in 2007, or 20% growth. We think more like 30% earnings growth is possible for the next 2-8 years. The stock was also added to the Community Bankers NASDAQ Index. The Regions and Amsouth merger announced last week, should help them a ton. This one is a sleeper, that’s about to get a big boost from this deal. Buy more up to $22.75.
2. TEXAS UNITED BANCSHARES (TXUI)announced a 4.7% stock buyback, time to cash out of any shares left. Sell, what a ride.
3. VALLEY NATIONAL BANK (VLY) while we haven’t been able to add to this one in years, due to the high price, we think NJ could be the start of of tremendous deal activity we will see in the next few years. They do have some hidden real estate, not reflected in their current book value.

STNJ, HTBC and VLY and all good sale candidates, all worth 30% more than they are trading at. This state gets the best prices always.

4. POPULAR INC (BPOP) with the noise about all these banks in their markets, we would sell BPOP for a small gain or loss, depending were you got in, simply much safer investment ideas have now come up with the sell-off.
5. HANCOCK HOLDING (HBHC) the stock goes up every day almost, time to “short” more over $56.00, as a hedge for any highly margined account. While the bank may sell-out next year, the price is currently over takeout value and loan growth is going to come in much slower than many people think. The IBD 100 is not a place for Bank stocks, this bubble will pop.
6. WESTERN ALLIANCE (WAL)time to cover the “short” on this one for a nice gain under $34.50.
7. WASHINGTON FEDERAL (WFSL) now our second largest holding. Keep buying under $22.60, as safe as it gets.
8. AMCORE FINCIAL (AMFI)announced a 12% stock buy-back wow!, buy more up to $29.90.

BankNewsletter.com 1-888-814-7575 10/04

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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© 1995-2006 by Douglas Hughes. Reproduction of this publication in whole or in part is strictly forbidden.

 

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