Description

PB Bankshares is the bank holding company for Presence Banks, a $450 million in assets bank located in Pennsylvania, halfway between Philadelphia to the east and Harrisburg to the west. The bank trades at 81% of TBV and is coming up on its 3-anniversary on 7/15 (2 days after NECB) of when it converted from a mutual bank. Unlike NECB, I do not believe that PBBK will sell right away but I do believe that it will be sold.

Background: Here is a brief history from the bank’s presentation from November 2023:

The current CEO, Janak Amin, was hired in 2019 to turn the bank around. Like many thrifts, Coatesville Savings Bank’s loan book was 90%+ fixed rate residential mortgages. Even with low interest rates, and low cost deposits, the bank barely made any money. Amin came in and completely changed the bank’s focus and culture. The focus going forward has been on commercial and focusing on developing relationships with businesses. I firmly believe that if the bank had continued its prior strategy, it would have either failed or been forced to merge with another mutual. You can access the recorded presentation for added information at https://www.virtualbankconference.com/.

Assets: The bank has grown assets 58% from $281 million as of 3/31/2021 to $445 million as of 3/31/2024. The bank did its IPO on 7/15/2021, which is why assets swelled in 2^nd Qtr 2021. The bank has no HTM securities, no intangibles, and AOCI is small.

Metrics: Below is a table of metrics. The biggest issue has been NIM compression.

Deposits: There is nothing special here, CDs make up 46% of deposits, and 5% are brokered. Fortunately, 84% of deposits are insured, as the bank participates in ICS to utilize reciprocating deposits with other banks. In the last 3 years, interest expense has risen more than 5-fold.

Loans: The bank has shifted to be a more commercial bank. You can see how CRE has grown. Being situated further away from the large cities, the bank’s exposure to office space is relatively small. Non-performing loans remain low. 77.5% of the loans are adjustable rate with the bulk of the fixed rate loans being 1-4 family residential.

Insiders: Insiders own 12.2% of the stock, with the CEO owning the largest share at 4.0%. The Employee Stock Option Plan (ESOP) owns 8.3%. 7 of the 10 directors are in their 70s. The biggest institutional owner is noted bank investment firm Maltese Capital with about 3% and Stilwell owns about 1%. The CEO has a golden parachute that pays 3X salary for 2 years in a change of control.

I think that the bank will sell itself in the next 3 years, maybe sooner, and I think the most likely buyer will be LinkBancorp (LNKB). Below are the proxy bios for Amin and Andrew Samuel, CEO of LNKB.

Janak M. Amin is the President, Chief Executive Officer and a director of Presence Bank and PB Bankshares. Mr. Amin leads the team at Presence Bank with values-driven principles that he has cultivated throughout two decades of executive leadership experience in the banking industry in Pennsylvania and Florida. Prior to joining Presence Bank, from 2018 to 2019, Mr. Amin served as Chief Executive Officer at LeTort Trust, an Independent Trust Company that provides personalized financial solutions to individuals, businesses and institutions. From 2016 to 2018, Mr. Amin served in various roles at Sunshine Bank, including most recently as Co-President. Mr. Amin served as a consultant to Sunshine Bank in 2015 and previously held the position of Market Chief Executive Officer for the Pennsylvania region for Susquehanna Bank from 2012 to 2014. Mr. Amin has also served in various executive positions at other financial institutions since 1997, including Tower Bancorp, Graystone Tower Bank, Graystone Financial, Sovereign Bank and Waypoint Bank. Mr. Amin is a graduate of Liverpool University (U.K.), obtained his MBA from The Pennsylvania State University and is a graduate of the Wharton School Advance Management Program. Mr. Amin currently serves on the board of Coatesville Area School District Education Foundation, the board of Pennsylvania Bankers Association and is a member of the Philadelphia Federal Reserve Bank’s Community Depository Institutions Advisory Council. Mr. Amin provides the board with nearly 25 years of banking experience in the Pennsylvania market.

Andrew Samuel, Chief Executive Officer: Mr. Samuel has served as LINK’s and LINKBANK’s Chief Executive Officer and Director since their inception in 2018. Prior to the merger with GNB Financial Services, Inc. (“GNB”), Mr. Samuel served as Chairman of LINK. Prior to his service with LINK, Mr. Samuel served as President and Chief Executive Officer of Sunshine Bancorp, Inc. (NASDAQ: SBPC) and Sunshine Bank since October 2014 through its acquisition in January 2018. He served as a Director and President of Susquehanna Bancshares, Inc. (NASDAQ: SUSQ) and President and Chief Executive Officer and Chairman of the board of Susquehanna Bank, from February 2012 to October 2014. Prior to joining Susquehanna and, beginning in 2005, Mr. Samuel served as Chairman, Chief Executive Officer and President of Tower Bancorp, Inc. (NASDAQ: TOBC) and Graystone Bank, a de novo bank he co-founded in 2005 that grew to approximately $2.7 billion in assets at the time of the sale to Susquehanna Bancshares, Inc. Mr. Samuel has served in various executive and other positions at other financial institutions dating back to 1984, including Waypoint Financial Corp., Sovereign Bank, Fulton Bank, and Commonwealth National Banks/Mellon. Mr. Samuel’s leadership experience and vast knowledge of the banking industry led to his nomination to the board.

Amin and Samuel share a lot of history together. They also share a common heritage. Samuel was born in India and details “…his journey from a cow dung floor in India to a successful career in entrepreneurship and banking…” in a book he wrote, “Our American Dream.” Amin received his undergraduate degree from the University of Liverpool and still retains a slight British accent if you talk to him. His LinkedIn profile shows that he speaks two languages: English and Gujarati, which is spoken in the western state of Gujarat in India that borders Pakistan along the Gulf of Oman.

LNKB has an interesting history, as well, having started de novo in 2018, merged with Gratz National Bank (GNBC) in 2021, and merged with Partners Bancorp (PTRS) in November 2023. LNKB has $2.8 billion in assets and a $239 million market cap. LNKB trades at 126% of TBV and could use its stock as currency.

Partners was a roll-up various banks influenced by Ken Lehman who is an under-the-radar small bank investor.

Lehman worked for the SEC and supposedly is the person who came up with the mutual holding company concept for thrift conversions. He then worked for Luse Gorman, a noted law firm frequently involved in bank conversions and M&A. What really sets Lehman apart is that he invests his personal money in banks, which allows him to hold higher stakes. For example, he owned about 45% of PTRS, and now owns about 23% of LNKB.

Both PBBK and LNKB came public in 2021, and both used acronyms of their core values statement to name the bank. LINK was based on Live, Integrity, Nurture, and Knowledge. PPBK had changed its name from Coatesville Savings Bank to Prosper Bank, based on Passion, Relationships, Openness, Service, Positivity, Education, and Results. Since there is Prosperity Bank and a lender called Prosper Financial, my guess is that PBBK may have been encouraged to seek another name.

In terms of locations, there is no overlap between PBBK and LNKB. PBBK would fill in parts of Chester and Lancaster counties where LNKB is not, and helps fill in some of the gap with the PRTS branches in Maryland and Virginia.

Valuation: Time to get down to business. First, you may be wondering why I have not talked about earnings. The reason is that there is not much to talk about. The bank was actually making progress in that department up until interest rates started rising. Given that the ratio of non-interest expense to assets is relatively good at 2.2%, there is not a lot of expense cutting that can be done. With a large portion of the loans being adjustable rate, the only thing that would improve earnings is if funding costs went down.

Using my takeout formula, it is actually around the current price but the bank won’t be sold at that price. I think that it could fetch 105-110% of TBV in a takeout. With TBVPS at $17.94, that would be between $18.83 and $19.73, representing a return of 30-36%.

Risks:

• Illiquid
• Does not sell out
• Credit issues with the loans

Catalyst

Bank sells itself.