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It’s time to start investing again. I love investing in bank stocks. The banking industry is simple to understand. The business of banking is like surfing. You’re riding a wave. Banks borrow at the short end of the yield curve and lend at the long end. In actuality, banks take in funds, in the form of deposits and borrowings, at one interest rate and lend those funds out or invest them at higher rates in the form of loans and investment securities. If a bank does this well without taking on undue risk, they can consistently generate mid- to high-double digit returns on equity through all kinds of different economic cycles.
Investing in community banks is kind of like buying a mutual fund of a regional economy. Small banks with the best odds of going from average to high performing will be the ones that operate in the areas with the strongest underlying economic growth. Simple, right? Actually that’s really all you need to know. A region with strong economic growth will have more jobs with better salaries. The businesses there will be higher performing, have more growth opportunities, and more consistent cash flow. That means people in that region will have more quatloops for bank deposits and savings, more demand for home and other loans, and more need for other financial products, like wealth management or insurance.
There’s a lot of money to be made in these sleepy little stocks. So instead of counting sheep, today I bought Summit Financial Group Inc. (SMMF) at 16.82. I will sell it in 4 to 6 weeks at 19.38. Here’s why I like SMMF:
It all starts with the chart….
SMMF stock is up 40% in the last 12 months, while the S&P 500 was actually down 1% over the same period. Meanwhile, the PE of this stock is only 11.4. What’s even better is that it pays a 2% dividend. Seriously, what’s not to like?
Summit Financial Group, Inc. operates as a financial holding company for Summit Community Bank that provides community banking and other financial services to individuals and businesses primarily in the Eastern Panhandle and South Central regions of West Virginia, and the Shenandoah Valley and Northern region of Virginia. The company operates in two segments, Community Banking and Insurance & Financial Services. Its community banking services include demand, savings, and time deposits; commercial, commercial real estate, construction and development, residential real estate, and consumer loans; letters of credit; and cash management services. The company also operates as an insurance agency that provides corporate and personal property and casualty insurance products, as well as group health and life insurance products, and consulting services. As of December 31, 2015, it operated 15 banking offices. Summit Financial Group, Inc. was founded in 1987 and is headquartered in Moorefield, West Virginia.
Local businesses cite lower labor costs, a trained and dedicated workforce and a well-connected transportation system among the many reasons to locate in the Shenandoah Valley. Pro-business state and local government initiatives add to the competitive advantages of doing business in the Shenandoah Valley of Virginia. Governor Terry McAuliffe announced last month that Virginia’s seasonally adjusted unemployment rate decreased 0.1 percentage point in January to 4.1 percent, the lowest rate since July 2008. Virginia’s seasonally adjusted unemployment rate remains below the national rate, which fell 0.1 percentage point in January to 4.9 percent.
Downtown Richmond is seeing a renaissance in its city skyline with two new office towers to be occupied by SunTrust Bank and Dominion Resources Inc. Tysons and Reston Town Center in Northern Virginia are other hot spots for high-rise commercial development, especially in areas close to the Washington Metro’s Silver Line.
Yet, grocery retailers are the ones who seem to be in an all-out war to see who can build stores the fastest. Wal-Mart, Kroger and Wegmans all have been expanding in Virginia, with Wegmans preparing to enter the Richmond market with two stores. Another Wegmans is planned for the ground floor of Capital One Financial Corp.’s new, 14-story corporate headquarters going up in McLean.
New grocery store competitors are adding thousands of square feet of retail space. They include two German discount grocers: Aldi, which is building stores in the Richmond and Roanoke markets, and Lidl, which has scooped up five store sites in the Richmond area.
Another new competitor is Publix Super Markets. The Florida-based grocer plans to put stores in Bristol and Henrico County.
The hotel industry also is seeing robust activity, in new developments and major renovations. A $75 million face-lift for the Cavalier Hotel in Virginia Beach is underway, with the historic hotel set to reopen later this year or in early 2017. In short, the region is very robust, and being a small bank in this region is very fortuitous.
Along with other small regional banks, Summit has now largely recovered from the impact of the effects of the economic downturn of the last decade. Since the second quarter of 2011, this company has experienced 15 consecutive quarters of profitability. Summit likes to think that “community” is their middle name, and that they serve many roles in the cities and towns where they operate.
Strong Year on Year earnings growth of 29% has propelled the stock price of SMMF. The company has demonstrated a pattern of positive earnings per share growth over the past two years. The company will be reporting quarterly earnings at the end of this month, but in January the earnings highlights were quite good – even during the middle of the market doldrums of the last 6 months:
Highlights for Q4 2015 include:
· 2015 was the most profitable year in Summits history, with net income of $16.10 million, or $1.50 per diluted share.
· Net interest margin increased 10 basis points compared to the linked quarter, and is 9 basis points higher than Q4 2014.
· Core revenues increased $255,000, or 1.8 percent (non-annualized) during Q4 2015, and $3.04 million, or 5.7 percent during 2015.
· Loan portfolio grew $17.2 million, or 1.6 percent (non-annualized) during Q4 2015, and $59.8 million, or 5.8 percent during 2015.
· Nonperforming assets as a percentage of total assets declined to 2.77 percent compared to 3.07 percent for the linked quarter, and 3.48 percent at year end 2014; foreclosed properties are at the lowest level since Q2 2009.
The positive earnings growth is really sexy when you consider the fact that the PE multiple is still very low. The price to book value is only 1.25, which means the stock market is giving very little value to any earnings growth at all – while there is very little downside since it is trading so close to its liquidation value.
A significant decline in costs (especially interest expense) and lower provisions registered on account of a substantial improvement in performing loans have contributed to the growth in net income. Interest expense has declined by 20% due to a shift to short-term borrowings from high-cost, long-term borrowings.
The big news is that at the end of February, Highland County Bankshares, Inc. (“HCB”) announced the signing of a definitive merger agreement between Summit Community Bank and HCB. The transaction has been unanimously approved by each company’s board of directors and is estimated to close early in the third quarter of 2016. The estimated aggregate merger consideration in the transaction is approximately $21.8 million based on HCB’s common shares outstanding of 574,370.
The CEO of Summit and HCB liked this deal and I do too:
“This is an exceptional opportunity to combine two financially strong banks with similar cultures, core values and guiding principles, as well as a shared commitment to build long-term client relationships by providing service beyond expectations,” stated Summit’s President and Chief Executive Officer, H. Charles Maddy, III. “Our top priority is to make sure HCB’s clients experience a smooth transition and enjoy the advantages of additional products and services as well as the added convenience of more banking locations offered by our combined organizations.”
HCB President Vernon Wooddell said, “We are extremely pleased and excited to be able to partner with a long standing community-focused institution like Summit. We believe our diligence and patience in pursuing the right path for our institution has been rewarded with this opportunity. With Summit having deep roots in rural communities, we know the heritage of First and Citizens Bank will be in good hands as it will preserve our tradition of exemplary personal service and local decision-making. Our customers will be able to continue their relationships with bankers who they have come to know and trust while gaining access to an expanded menu of financial products and services.”
This is a classic roll up where the overhead costs of both companies will be squeezed out to make the combined entity much more profitable and will definitely juice the valuation of SMMF once consolidated.
As for the rest of the year, the big boss says:
“The year just concluded marked a significant milestone towards Summits goal of being a consistent, high-performing community banking institution. Our improved earnings performance, increased return on assets and equity, growing loan portfolio, increasing revenues, improved net interest margin, strengthened capital, and continuing reductions in the portfolio of problem assets, all serve as evidence towards achievement of this goal. Further, we are very pleased to end 2015 with another exceptional quarter of solid performance, which gives us optimism as we look forward to 2016 and beyond.”
I’m not happy that it took so long to get back into the market, but as you know, $$$MR. MARKET$$$ is in it to win it, and this safe bet will certainly be the start of another long run of winners.
I am HUGE!
$$$MR. MARKET$$$
www.mrmarketishuge.com
Investing in community banks is kind of like buying a mutual fund of a regional economy. Small banks with the best odds of going from average to high performing will be the ones that operate in the areas with the strongest underlying economic growth. Simple, right? Actually that’s really all you need to know. A region with strong economic growth will have more jobs with better salaries. The businesses there will be higher performing, have more growth opportunities, and more consistent cash flow. That means people in that region will have more quatloops for bank deposits and savings, more demand for home and other loans, and more need for other financial products, like wealth management or insurance.
There’s a lot of money to be made in these sleepy little stocks. So instead of counting sheep, today I bought Summit Financial Group Inc. (SMMF) at 16.82. I will sell it in 4 to 6 weeks at 19.38. Here’s why I like SMMF:
It all starts with the chart….
SMMF stock is up 40% in the last 12 months, while the S&P 500 was actually down 1% over the same period. Meanwhile, the PE of this stock is only 11.4. What’s even better is that it pays a 2% dividend. Seriously, what’s not to like?
Summit Financial Group, Inc. operates as a financial holding company for Summit Community Bank that provides community banking and other financial services to individuals and businesses primarily in the Eastern Panhandle and South Central regions of West Virginia, and the Shenandoah Valley and Northern region of Virginia. The company operates in two segments, Community Banking and Insurance & Financial Services. Its community banking services include demand, savings, and time deposits; commercial, commercial real estate, construction and development, residential real estate, and consumer loans; letters of credit; and cash management services. The company also operates as an insurance agency that provides corporate and personal property and casualty insurance products, as well as group health and life insurance products, and consulting services. As of December 31, 2015, it operated 15 banking offices. Summit Financial Group, Inc. was founded in 1987 and is headquartered in Moorefield, West Virginia.
Local businesses cite lower labor costs, a trained and dedicated workforce and a well-connected transportation system among the many reasons to locate in the Shenandoah Valley. Pro-business state and local government initiatives add to the competitive advantages of doing business in the Shenandoah Valley of Virginia. Governor Terry McAuliffe announced last month that Virginia’s seasonally adjusted unemployment rate decreased 0.1 percentage point in January to 4.1 percent, the lowest rate since July 2008. Virginia’s seasonally adjusted unemployment rate remains below the national rate, which fell 0.1 percentage point in January to 4.9 percent.
Downtown Richmond is seeing a renaissance in its city skyline with two new office towers to be occupied by SunTrust Bank and Dominion Resources Inc. Tysons and Reston Town Center in Northern Virginia are other hot spots for high-rise commercial development, especially in areas close to the Washington Metro’s Silver Line.
Yet, grocery retailers are the ones who seem to be in an all-out war to see who can build stores the fastest. Wal-Mart, Kroger and Wegmans all have been expanding in Virginia, with Wegmans preparing to enter the Richmond market with two stores. Another Wegmans is planned for the ground floor of Capital One Financial Corp.’s new, 14-story corporate headquarters going up in McLean.
New grocery store competitors are adding thousands of square feet of retail space. They include two German discount grocers: Aldi, which is building stores in the Richmond and Roanoke markets, and Lidl, which has scooped up five store sites in the Richmond area.
Another new competitor is Publix Super Markets. The Florida-based grocer plans to put stores in Bristol and Henrico County.
The hotel industry also is seeing robust activity, in new developments and major renovations. A $75 million face-lift for the Cavalier Hotel in Virginia Beach is underway, with the historic hotel set to reopen later this year or in early 2017. In short, the region is very robust, and being a small bank in this region is very fortuitous.
Along with other small regional banks, Summit has now largely recovered from the impact of the effects of the economic downturn of the last decade. Since the second quarter of 2011, this company has experienced 15 consecutive quarters of profitability. Summit likes to think that “community” is their middle name, and that they serve many roles in the cities and towns where they operate.
Strong Year on Year earnings growth of 29% has propelled the stock price of SMMF. The company has demonstrated a pattern of positive earnings per share growth over the past two years. The company will be reporting quarterly earnings at the end of this month, but in January the earnings highlights were quite good – even during the middle of the market doldrums of the last 6 months:
Highlights for Q4 2015 include:
· 2015 was the most profitable year in Summits history, with net income of $16.10 million, or $1.50 per diluted share.
· Net interest margin increased 10 basis points compared to the linked quarter, and is 9 basis points higher than Q4 2014.
· Core revenues increased $255,000, or 1.8 percent (non-annualized) during Q4 2015, and $3.04 million, or 5.7 percent during 2015.
· Loan portfolio grew $17.2 million, or 1.6 percent (non-annualized) during Q4 2015, and $59.8 million, or 5.8 percent during 2015.
· Nonperforming assets as a percentage of total assets declined to 2.77 percent compared to 3.07 percent for the linked quarter, and 3.48 percent at year end 2014; foreclosed properties are at the lowest level since Q2 2009.
The positive earnings growth is really sexy when you consider the fact that the PE multiple is still very low. The price to book value is only 1.25, which means the stock market is giving very little value to any earnings growth at all – while there is very little downside since it is trading so close to its liquidation value.
A significant decline in costs (especially interest expense) and lower provisions registered on account of a substantial improvement in performing loans have contributed to the growth in net income. Interest expense has declined by 20% due to a shift to short-term borrowings from high-cost, long-term borrowings.
The big news is that at the end of February, Highland County Bankshares, Inc. (“HCB”) announced the signing of a definitive merger agreement between Summit Community Bank and HCB. The transaction has been unanimously approved by each company’s board of directors and is estimated to close early in the third quarter of 2016. The estimated aggregate merger consideration in the transaction is approximately $21.8 million based on HCB’s common shares outstanding of 574,370.
The CEO of Summit and HCB liked this deal and I do too:
“This is an exceptional opportunity to combine two financially strong banks with similar cultures, core values and guiding principles, as well as a shared commitment to build long-term client relationships by providing service beyond expectations,” stated Summit’s President and Chief Executive Officer, H. Charles Maddy, III. “Our top priority is to make sure HCB’s clients experience a smooth transition and enjoy the advantages of additional products and services as well as the added convenience of more banking locations offered by our combined organizations.”
HCB President Vernon Wooddell said, “We are extremely pleased and excited to be able to partner with a long standing community-focused institution like Summit. We believe our diligence and patience in pursuing the right path for our institution has been rewarded with this opportunity. With Summit having deep roots in rural communities, we know the heritage of First and Citizens Bank will be in good hands as it will preserve our tradition of exemplary personal service and local decision-making. Our customers will be able to continue their relationships with bankers who they have come to know and trust while gaining access to an expanded menu of financial products and services.”
This is a classic roll up where the overhead costs of both companies will be squeezed out to make the combined entity much more profitable and will definitely juice the valuation of SMMF once consolidated.
As for the rest of the year, the big boss says:
“The year just concluded marked a significant milestone towards Summits goal of being a consistent, high-performing community banking institution. Our improved earnings performance, increased return on assets and equity, growing loan portfolio, increasing revenues, improved net interest margin, strengthened capital, and continuing reductions in the portfolio of problem assets, all serve as evidence towards achievement of this goal. Further, we are very pleased to end 2015 with another exceptional quarter of solid performance, which gives us optimism as we look forward to 2016 and beyond.”
I’m not happy that it took so long to get back into the market, but as you know, $$$MR. MARKET$$$ is in it to win it, and this safe bet will certainly be the start of another long run of winners.
I am HUGE!
$$$MR. MARKET$$$
www.mrmarketishuge.com
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