A Review Of New Resource Bank, A Profitable 'Story Stock' Trading …
Summary
New Resource is a San Francisco-based “green” bank.
It was the first publicly-owned corporation to become a ‘B’ Corp.
This very small company’s growth has begun to accelerate.
Investors who are interested in building positions in illiquid microcap stocks might be interested in learning more about this company.
Background: As an eclectic investor, I like to have deep value stocks in my portfolio that are undervalued enough that they meet a Seth Klarman-type criterion of having a high margin of safety. In what many money managers consider to be a generally richly-valued set of financial assets – both stocks and bonds – I find that in order to truly have the margin of safety that was commonplace when I began investing in 1979, I must own somewhat illiquid stocks. (Once in a while there is the rare special situation wherein a large cap stock looks seriously undervalued; this includes Apple (AAPL) in 2010-2012 and Gilead Sciences (GILD) recently and today). But those are rare, and because they are so well-followed, it is always a question as to whether they are truly bargains, or Mr. Market once again knows more than you.
One group of potential bargains coming out of the financial crisis of 2007-9 is community bank stocks. This article discusses a bank that Seeking Alpha contributor and commenter Phil Timyan blogged about a few months ago. This microcap stock, New Resource Bank (OTCQB:NWBN), has an attractive, unusual story. I own shares both for myself and for my grandson in his Uniform Gift to Minors brokerage account, and hope for long-term sustained appreciation.
Introduction: One-branch banks can be great investments, especially if they have a niche and not only a location. The niche that NWBN fills is that of a ‘green’ bank. It is a ‘B’ corporation, namely one that is engaged in sustainable practices in its lending and in its general operations. This is a new concept. One does not have to be an ardent believer to own stock in any business built around a cause; teetotalers may own liquor stocks and non-coffee or tea drinkers may own stock in a coffeehouse chain. In the case of NWBN, its location in San Francisco appears just right for its cause. It is able to draw upon the following positive combination of circumstances: lots of management that believes in greenness; lots of lending opportunities to support green companies or enterprises; and, many residents who will prefer to support the bank with their deposits.
The company describes itself as follows:
The bank is the first publicly traded company to become a B Corporation. B Corporations meet comprehensive social and environmental performance standards, and New Resource shares qualify as a socially responsible investment.
In the most recent reporting period, New Resource Bank earned five-star ratings-the highest possible-from both the Global Impact Investing Rating System (GIIRS) and BauerFinancial. GIIRS assesses the social and environmental impact of companies and funds using an approach analogous to Morningstar investment rankings and Capital IQ financial analytics. BauerFinancial rates U.S. banks based on their capital ratio, profitability trend, level of delinquent loans, community reinvestment rating, liquidity and other criteria.
NWBN has recently reported a strong growth quarter. Let’s dig into the details.
New Resource’s Q1: Here’s the summary paragraph from the press release:
Net income for the quarter was $346,000, compared with $187,000 for the quarter ended March 31, 2013-an 85.6 percent increase. Gross loans increased 23.8 percent year over year, from $136 million at March 31, 2013, to $168.3 million at March 31, 2014. The bank also recorded solid growth in deposits and total assets compared with totals at March 31, 2013, and again improved on its already strong credit quality.
Now, if you own a money center or midsize bank, you are used to numbers with several more zeros at the end of these statistics. This is a true micro-cap stock for a reason: it’s very, very small. However, the additional details suggest to me that this very little acorn could turn into a strong tree when mature:
Key financial results from the first quarter 2014 compared with the same quarter 2013 include:
Loan growth: Loans outstanding grew 23.8 percent, to $168.3 million from $136 million a year ago.Asset quality: Non-performing loans as a percentage of total loans dropped to 0.13 percent at March 31, 2014, from 1.48 percent at March 31, 2013.Non-performing assets to total assets: Non-performing assets to total assets decreased from 0.97 percent to 0.10 percent.Deposits: Deposits rose 7.1 percent, to $191.3 million at March 31, 2014, from $178.5 million at March 31, 2013.Total assets: Total assets increased 6.6 percent, to $222 million from $208.3 million at March 31, 2013.Net interest income: Net interest income was $2.3 million, a 14.3 percent rise from $2 million for the quarter ended March 31, 2013.Non-interest expense: Non-interest expense was $2.1 million, a 4.6 percent rise from $2 million for the quarter ended March 31, 2013.Efficiency ratio: The bank’s efficiency ratio for the quarter was 84 percent, compared with 90.4 percent for the quarter ended March 31, 2013.Risk-based capital: The bank’s total risk-based capital ratio was 17.64 percent, significantly above the standard for a well-capitalized bank.
Editor’s Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Source:
A Review Of New Resource Bank, A Profitable ‘Story Stock’ Trading Below Book Value
More:
A Review Of New Resource Bank, A Profitable 'Story Stock' Trading …
