Thursday, August 30, 2012

Northeast Community Bancorp, White Plains, NY (NECB)

The Case of a Gluttonous Bank en route to Morbid Obesity


Is there any hope Northeast Community Bancorp will check its overindulgence before it's too late? After reviewing the state of affairs at NECB, I have to agree with what the market is saying: the bank's directors have dissipated half of its value since it came public in 2006, and their expansion plans are only taking it down. To watch how they gorge themselves at the expense of shareholders is just plain revolting. The two Kennies in charge ought to be ashamed of themselves, cut their salaries, dispose of their far-flung branches, take the rest of the bank's shares public, buy back what stock they can, sell to the highest bidder, and spare us their ugliness.

Disclosure: As of this posting, I do not own shares of NECB but may subsequently purchase them.
    Prospective Buyers
    Customers Bancorp, Wyomissing, PA (privately held) - Recently purchased CMS Bancorp (CMSB) of White Plains and has expressed intentions to continue growing in New York
    Hudson Valley Holding, Younkers, NY (HVB) - Five times bigger than NECB with overlapping branches 
    Peoples United Financial, Bridgeport, CT (PBCT) - An acquisitive bank with overlapping branches
    Financial Snapshot
    (as of 06/30/2012)

    Total assets:
    $453M
    Tangible book value per share:
    $8.33
    NPAs to assets:
    5%
    Price to book:
    61%
    Market cap:
    $65.6M
    Dividend yield:
    2.3%
    Trailing 12-month return on assets:
    0.27%
    Trailing 12-month return on equity:
    1.22%
    Scoundrels
    Kenneth Martinek, Chairman, President, and CEO
    Kenneth H. Thomas, Director and "Consultant"
    Salvatore Randazzo, CFO and Executive VP
    Jose Collazo, COO, CIO, and Executive VP

    Red Flags
    NECB isn't earning anything close to a reasonable return
    • Decent banks make 10% on equity or can at least articulate a plan for getting there
    • The most NECB ever made was about 0.8% ($6M on $240M in assets) in the three years prior to going public (2003-2005)
    • In contrast, Lake Shore Bancorp (LSBK), a bank of almost identical asset size, is nearly five times more profitable
    • NECB's stock is trading at half where it was when it came public, while rival LSBK is still trading where it came public
    NECB's expansion plan is delusional
    • The more NECB has grown over the past decade, the less it has earned
    • After more than doubling its assets, NECB netted a mere $1.5M, 0.01% return — a spectacular 79% drop in performance from before going public in 2006
    NECB is grossly overcompensating its executives
    • The executive team of Northeast Community Bancorp earns more in personal compensation than the bank earns as a corporation 
    • NECB's CEO pays himself $340K per year — more than three times the national average of $110K estimated by Career Builder
    • Kenneth Martinek's compensation is 40% higher then that paid to Daniel P. Reininga, CEO of way-better-performing Lake Shore Bancorp (LSBK)
    NECB is putting self-dealing above insider ownership
    • Bank Director Kenneth Thomas has been receiving compensation from NECB for 34 years!
    • NECB has paid Thomas over $500K in the past five years alone, presumably for expansion consulting services that clearly haven't served the bank or its shareholders
    • The self-proclaimed bank analyst has at least $2.5M to toss around in bids after failed bank branches, but doesn't believe enough in his own bank after all these years to own more than $50K worth of stock
    • Last week this whiny sore loser loose cannon of a Director lost a bid to purchase a bank branch in Doral, FL and filed a lawsuit against the winning bidder
    Sources

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