Description
STND is another tiny bank in southwestern PA with a $53 million market cap and $435 million in assets. It trades at 79% of TBV, excluding All Other Comprehensive Income (AOCI), is earning money and is over-capitalized. To that last point, management announced in the latest earnings release a 10% stock buyback authorization and initiated a $0.045/share quarterly dividend.
(I know what some may be thinking - back-to-back ideas in December = someone punching in their VIC admission ticket for another year. See FFCO idea for background material.)
History: The bank began in Murrysville, PA, which is noted for having the first commercial natural gas well, called the Haymaker and drilled in 1878, in the US. The bank was founded in 1913 and is a Pennsylvania chartered savings bank. It formed an MHC in 1998. In 2002, STND made a one-branch acquisition. STND acquired a commercial bank, Hoblitzell National Bank (HNB), in 2006, which included the two Maryland branches and the one in Hyndman. Since the bank is state regulated, the full conversion in 2010 was not prompted by the demise of the OTS. It currently operates 10 branches, of which three are outside the shale areas.
Loans: The loan book is 50% residential mortgages, 30% commercial real estate, 16% HELOC’s, 4% commercial and 1% other loans. Non-performing loans (NPL’s) are reasonable at 1.24% of all loans and are mainly in commercial real estate. With allowance for loan losses at 126% of NPL’s, they are well covered.
Other Assets: Almost 1/4th of assets consist of investments for sale. This is largely treasuries, agency MBS, munis and corporate.
Management: The Chairman of the Board is Terence Graft, 60, owns two funeral homes. Oddly, small community banks tend to have people from the deathcare business on their boards – insert bad joke of your choice. CEO is Timothy Zimmerman, 61, who has been in the job for almost 20 years. Most of the board is about the same age as the CoB and CEO. I also like that 6 of the 9 directors and executives ordered the maximum number of shares in the conversion. The bank pays for the CEO’s country club expenses. I always like small bank executives who play to golf because they are frequently incented to find ways to spend more time on the course.
SC 13 Filers: Wellington Management owns 8.99%. The employee stock option plan (ESOP) owns 8.0%, Stilwell owns 7.96% and filed a 13D. Other noted filers are Raffles Associates at 6.89% and Sandler O’Neill at 5.18%. Although Sandler is involved in underwriting thrift conversions, Stifel Nicholaus was the underwriter for STND’s conversion.
Recent Deals: A recent SNL Financial report listed all the thrift buyouts since 2010. A decent comparable was Susquehanna Bancshares (SUSQ) buying Abington Bancorp (ABBC) for 124% of TBV. ABBC was based in eastern Pennsylvania, specifically the Philadelphia suburbs. In the Pittsburgh area, FNB Corporation (FNB) is in the process of buying Parkvale Financial (PVSA) at almost 2x TBV. While PVSA is headquartered in Monroeville, PA like STND, its footprint is more based in Pittsburgh and the surrounding suburbs.
Risks:
- Management starts empire building
- Economic benefits of shale gas drilling do not trickle down to the local area
- Loan book deteriorates
- Fracking becomes an environmental nightmare
Catalyst
This is a well-run bank. Look at the Selected Financial Data on p. 24 of the FY 2010 10-K:
http://www.sec.gov/Archives/edgar/data/1492915/000095012310116039/l41327e10vk.htm#108
From FY06 to FY10, management has reduced the efficiency ratio from low 80’s to low 60’s, improved ROA and ROE, while keeping excellent credit quality during an arguably difficult time. Throw in the recently announced 10% stock buyback and dividends, and management “gets it.” This is not rocket surgery.