Tuesday, 10 June 2014

Northrim BanCorp: Investing in Alaska’s Growth Story

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The oil and gas industry plays a major role in the economic growth of Alaska.  The industry paid 47% of the taxes and royalties as a percentage of total state revenues in fiscal year 2013. It is a major contributor to the growth of the state in terms of taxes, royalties paid and jobs created.

Wednesday, 4 June 2014

Old Line Bancshares: Well Positioned to Deliver Strong Growth

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Disclosure: I do not hold any positions in the stocks mentioned in this article and not planing to initiate any in the next seven days. The views expressed in this article are my own.

Old Line Bancshares, Inc. (OLBK) is the holding company of Old Line Bank. Old Line Bank is engaged in providing commercial banking services in the suburban Maryland. Along with other markets, Old Line Bank has a presence in two major markets in Maryland where exceptional growth is possible: Prince George’s County and Montgomery.

Monday, 2 June 2014

Financial Services for the Non-banking Population of India (Part - II)

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Disclosure: I do not hold any positions in the stocks mentioned in this article and not planing to initiate any in the next seven days. The views expressed in this article are my own.

There are approximately 4,90,000 unbanked villages with populations less than 2000. Banks are projected to provide financial services to these villages by March 2016 as per the Reserve Bank of India (RBI) mandate. The poor population living in these villages needs financial services from banks to get loans at cheap interest rates compared to the exorbitant rates of moneylenders and NBFC’s.

Financial Services for the Non-banking Population of India (Part - I)

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Disclosure: I do not hold any positions in the stocks mentioned in this article and not planing to initiate any in the next seven days. The views expressed in this article are my own.

Financial services are an integral part of human life in this modern, competitive world. It is difficult to imagine a society today without access to lending and other financial services and products. Access to financial services and products gives us the opportunity to meet current living requirements and to safeguard the future. An absence of these services increases the risks and costs of a person’s well-being.

Monday, 19 May 2014

Twitter: Expecting The Same Growth In Users As Facebook Has Seen

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Are we undermining the potential of Twitter (TWTR) by considering the deceleration in active user growth?

       Slowdown in Active User Growth 
                                                                                                                                                         Source: Business Insider 
One main concern rising within Wall Street is the slowdown in the growth of monthly active users, comparing Twitter with Facebook (FB) and expecting the same user base as Facebook attracts. While few analysts say that comparing Twitter with Facebook is not useful. Facebook maintains a focus on providing a platform to users for socializing with other users, while Twitter is highly focused on helping users spread information; this makes these two not comparable with each other. Twitter does not provide the level of features and tools that Facebook offers to its users to engage with other users.

Many media platforms have adopted Twitter to let their viewers express their opinions and participate in debates; this is not possible on social networking platform Facebook, on which the main aim of the user is to interact with others through various activities. By providing several features to enable users to interact with others, Facebook has created a platform where users can always be engaged in several activities. However, on Twitter, you cannot be engaged in tasks except spreading information. This makes it difficult for Twitter to accumulate a mass audience. Debates and discussions that media channels initiate on Twitter cannot entice the user to engage in the same task every day, because not every person is interested in all discussions and debates, and one is not interested in giving an opinion when nobody listens. For that matter, many would not be interested in making statements or participating in discussions.

Many people like to be the center of attention; otherwise, nobody would be interested in participating in any activity (there are few exceptions, but they are not that important). There are many limitations to using Twitter when compared with Facebook, where the sky is the limit for interacting with others.
However, this does not mean that many users will not use Twitter; this platform has its own uniqueness. For example, media platforms have aggressively adopted Twitter. A recent study found that exposure to TV-related tweets has been rewarding for both consumers and broadcasting channels. Among the users surveyed, 99% were exposed to TV-related tweets.

After seeing TV-related Tweets, 90% of respondents took subsequent action such as watching a show they’ve never watched before, resuming watching a show that they’d previously stopped watching, and/or searching for more information about the show online. In fact, one-third of respondents reported having changed the channel to watch a show after seeing Tweets about it.

Twitter has become more valuable to media platforms as they increase their usage of this social media site. The engagement and awareness Twitter has been creating for media channels will help them sustain the viewer’s attention longer, giving them the opportunity to promote relevant content on Twitter. At present, Twitter is available in more than 35 languages if its content is available in more languages it will help Twitter generate more users.

Facebook and Twitter are unrelated platforms with different targeted audiences and characteristics. Expecting the same user base as Facebook in Twitter undermines the uniqueness of Twitter, where mass adoption and retaining the user is not possible at the same level as that of Facebook.

Tuesday, 4 March 2014

BlackRock: Investing in an Investment Management Company

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Whether we earn sufficient money to support our desired lifestyle or not we all try to save some money or invest money (not necessarily investment products that trade in the stock markets) to build a nest egg  at some point of time in our life. The purpose for the investment may not be the same and at the same time, the returns expected might not be the same, because people invest for various reasons. The continual change and modernization of society means that reasons behind investment are continually changing and the appetite to earn more is increasing as each day passes. And the evolving world with its volatile monetary systems is becoming more complex and troublesome for those people who do not save and spend more than they earn. At the same time the living standards and opportunities for achieving a luxurious life is improving for many, which may lure more people (with an insatiable desire for more or to continually better themselves), to invest to earn more. If this trend continues, we can say that the interest towards investing (In equities and related products also) will continue to increase in the future.

As the desire to earn more grows, people start to increase their risk taking capabilities. This drives them towards investments like equities, mutual funds and other complementary and related products that offer high risk–reward investment opportunities. But everyone who invests in these products does not know how to find or manage the risk–reward inherent in the underlying investments (example: individual stocks). This is creating an abundant opportunity for asset management companies like BlackRock to grow.

Company and Financials

BlackRock, Inc. (NYSE:BLK) provides various products and services including investment management, risk management and advisory services to its clients around the world. At the end of December 31, 2013, BlackRock had $ 4.324 trillion assets under management, which is a 14% increase from 2012.

BlackRock reported diluted EPS of $ 16.87 for the full 2013 year, an increase of 22% from the previous year. The Board of Directors of the company declared a quarterly cash dividend of $1.93 per share of common stock for the fourth quarter that included a 15% increase from the previous quarter. The company’s cash dividends (paid and declared per common share) for the full 2013 year were $6.97. Very few companies pay this high a cash dividend per year, and this is a rare opportunity in the stock market.

Macro Environment

Though there is no saturation in marketed products and services (individual products and services are growth driven) related to investment, overall performance of the economy is key to understanding and predicting how well Blackrock will perform. I do not see any negative factors for the growth of the company as long as the US economy is in a positive GDP growth trajectory.

The pace at which the economy grew in 2013 is likely to continue in 2014, thanks to a growth friendly environment. Federal Reserve tapering seems to have started at the right time and there are no major negative effects from it so far for Blackrock.  


BlackRock was trading at $300.35 per share at the close on March 03, 2014 with a price to earnings ratio (ttm) of 17.79 and a price to book ratio (mrq) of 1.95. Considering the size and growth rate at which the company is growing, it deserves a much higher valuation. The recent stock price dip is a good opportunity to enter into the stock.      

The demand for investment related products and services is rising as a result of the increasing complexity of life and because many are wanting a better life style. Well run companies like BlackRock, which has a presence in both developed and emerging economies, have opportunities and potential to continue to grow at the rate from its recent past.

Disclosure: I do not hold any positions in the stocks mentioned in this article and don’t plan to initiate any in the next seven days. The views expressed in this article are my own.

Wednesday, 12 February 2014

Pacific Premier Bancorp: Great fit into any Portfolio

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Recently I wrote an article about a community bank whose strategy is growing through inorganic growth; it is trading at cheap valuation and has good growth prospects for the long term. Now it’s time to know about another small cap community bank: Pacific Premier Bancorp, Inc. (PPBI) It is a holding company for Pacific Premier Bank, a business bank whose primary focus is serving small and medium- sized businesses. It is one of the largest community banks in Southern California.

Pacific Premier Bancorp completed two acquisitions in 2013 and one at the end of January 2014. The acquisitions were San Diego Trust Bank, First Associations Bank and Infinity Franchise Holdings, LLC (IFH). The addition of Infinity into the books will have some anticipated negative impacts on the earnings of Pacific Premier in the first quarter of 2014, as the costs of consolidation activities take place during that time.


The banking industry in general is focused on cutting costs and provision releases (due to increased pressure on Net Interest Margin). Only a few banks are choosing to buck this trend, and they have their own reasons. Significant increase in expenditures, relating to Pacific Premier’s operations and non-recurring merger expenses related to the recent acquisitions, made a big dent in the earnings of Pacific Premier in 2013. The company reported EPS of $ 0.54 cents for the year 2013, a decline by 62.5% from the previous year EPS of $ 1.44 dollars.

                                                                                                    (Source: Investor Presentation)
Nonperforming assets provides investors a way to assess the bank’s quality of assets. Only 0.20% of Pacific Premier’s total assets are nonperforming, which indicates a great credit quality. This kind of credit quality requires tighter rules and regulations and some trade-off in loans.

Growth Strategy

There are two ways for banks—or any company—to grow. One is organic growth and the other is inorganic growth. When a company is growing through a pure organic growth strategy, it can control the costs and leverage its resources to the highest extent possible. In other words, everything is under the management’s control. How they manage their resources to capture opportunity is up to them. But when there is no greater opportunity to grow, or if the company wants to expand faster than it can through organic growth alone, then it will go for inorganic growth. That is, it acquires other banks, which gives it the opportunity to expand to nearby locations and grow faster. Pacific Premier chose the inorganic growth strategy and has made a few acquisitions that it thinks will fit into its current structure.

These acquisitions give more room for the bank to cross-sell its products and services to a wide variety of customers. That means an improved opportunity to grow at a faster rate. This growth strategy, however, brings some short-term disadvantages. The costs related to merging these acquisitions will impact the bank’s income statement for some time.

Efficiency ratio of the company was at 64.68% for the full year of 2013. In the fourth quarter of 2013 it declined to 60.45%, from 67.72% in the third quarter. Though there is some improvement in the fourth quarter, it is still at very high levels; if not managed well, it will dent the earnings in 2014 as well. Return on average assets is 0.62 for the full year 2013. In the fourth quarter of 2013, the company managed to post improved return on average assets of 1.05, compared with previous quarter’s 0.78.

Return on average assets of above 1.00 is a good sign that the company is doing well. However, Pacific Premier’s problem in 2013 for was that it was not consistent throughout the year, due to expenses related to acquisitions and the company’s own operations.

The loan book saw significant growth in 2013, for the fourth year in a row, thanks to the management’s focus on inorganic growth. This significant improvement in the loan book provides a great opportunity for the bank earnings to grow from 2014 onward.

Pacific Premier is trading at a Forward Price to Earnings of 10.96, and at a Price to Book value of 1.49—not an highly undervalued stock, but not an overvalued stock, either. Considering the investment that Pacific Premier has made for growth through the recent acquisitions, it is poised to deliver exceptional returns to its long-term shareholders.

Thursday, 30 January 2014

Premier Financial Bancorp: Needs more attention

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Traditionally, many banks follow organic growth but a few choose to depend mostly on inorganic growth. Premier Financial Bancorp, Inc. (Nasdaq:PFBI) is one of the latter.  Premier is a multi-bank holding company with two subsidiaries: Citizens Deposit Bank & Trust and Premier Bank, Inc.  PFBI operates thirty five branches in Kentucky, Ohio, West Virginia, Washington D.C., Maryland and Virginia.

Have the intentions of a growth friendly environment created by the government been fulfilled in the way that was anticipated?  Things appear to be happening slower than the government had planned, but the environment has definitely helped holding companies like Premier. However, do not expect everything to be positive for conservative investors who do not take much risk to reap higher rewards as there are a few bumps in the road that will stop them in the middle. For the opposite type of investors, they will like the results.

With loan growth of 3.9% in 3Q2013, Premier posted net income growth of 62.8% and EPS growth of 23.7% in the same period.

The 2013 performance was largely a result of cost cutting measures and reserve releases. The provision for loan losses declined to $ 50,000 in the third quarter 2013, from $ 1.26 million same quarter 2012, that is 96% decline.  

After three quarters from the end of 2012, Premier’s nonperforming assets declined by 21.9% and the recoveries outpaced the charge-offs in the nine months of 2013, which boosted Premier’s earnings. This was not real growth; such improvements cannot drive earnings very long. Besides, the growth friendly environment set to expire slowly will take away those benefits in the future.

PFBI grows by acquiring community banks. It acquires them at the start of about a five-year period and consolidates them during the rest of it. This is like bulking up the balance sheet and seeing an immediate effect on earnings and improved assets quality. While this is a catalyst for its growth, it also possesses some risks for Premier. One can’t rule out the possibility that Premier acquires troubled community banks that deteriorate its present position in the current spree of acquisitions. If that happens, investors will have to wait for at least two or three years to earn meaningful returns.  PFBI’s previous acquisition spree was completed on October 1, 2009, with the acquired banks accounting for 57.5% of Premier’s overall non-performing assets on September 30, 2013. It is easy to understand the effects of those prior troubled community bank acquisitions.

Since the circumstances have changed significantly with a growth friendly environment in place, many banks have improved their credit quality and are in a good position. But the low interest rate environment also decreases the interest margins of banks and with the mortgage business struggling, one can expect that Premier might acquire some troubled banks in the current acquisition spree just started. If that happens, such acquisitions will be at a significant discount to their real value, making Premier a better investment for long-term investors as it starts consolidating the acquired banks. If it acquires slowly growing banks or the above level, then there will be a significant improvement in the earnings of Premier in the next two years immediately.

After successfully completing the consolidation of the previously acquired banks, Premier appears to have started acquiring community banks again after more than five years. It entered into a definitive agreement with Gassaway Bancshares, Inc., to acquire its subsidiary Bank of Gassaway, and this acquisition is expected to be complete in the second quarter of 2014.

More than 85% of the bank’s income comes from interest income. That means interest rates will have higher leverage on overall income. When the interest rates start rising (near future), it will have a higher impact on the earnings of Premier in the long run. This makes Premier a better investment destination for those who are looking for banks that are less dependent on mortgage refinancing. The net interest margin for the first nine months of 2013 was 4.33%.

Premier is trading at 0.79 times book value and has posted EPS of $1.07 in the first nine months of 2013. It has a better chance of trading at a higher valuation in the long-term (more than 3 years) in both of the acquisition situations previously discussed. The problem with an acquisitions growth strategy is that it can’t predict the state of Premier after the acquisitions if the condition of the banks it is going to acquire is unknown. This makes an investment in Premier uncertain for the short term, but for long-term investors, Premier will be a better opportunity at the current levels.