Beneficial Mutual Bancorp: A bright spot in banking
Banking is not exactly an industry generating a lot of investor attention these days, as an epidemic of home foreclosures start showing up on the balance sheets of all those banks that made questionable loans in the first place. Five banks have already failed this year and many others are racking up sizable losses.
But not all homes in the country are in foreclosure, and likewise, not all banks are struggling. Beneficial Mutual Bancorp Inc. (Nasdaq:BNCL) is a mid-tier bank in Philadelphia serving a region of the northeastern United States that has been relatively immune to the housing crisis, and its stock and balance sheet reflect that stability. The company’s shares have risen steadily since going public at $9.21 a year ago and on Monday closed at $12.03.
“This is not a company that’s been significantly affected by the sub-prime lending crisis,” said Boenning & Scattergood analyst Jason O’Donnell. “If they do have any exposure to bad debt, it is minimal.”
O’Donnell is noted in a research report in July that the turmoil in the banking sector had created “some unusual opportunities for investors to buy sound financial institutions at cheap prices” and said that Beneficial Mutual had a strong capital position, and a strong earnings outlook.
Beneficial Mutual’s stock is not widely covered by analysts, but two who do track the stock project its earnings will rise to $0.27 per share this year and $0.33 next year from $0.06 per share a year ago. They estimate revenues will rise to $140 million this year and 161.2 million, from $97.5 million a year ago.
Since it began disclosing financial results a year ago, the bank’s interest income has grown steadily to $48.2 million in the latest quarter, from $31.4 million in the same quarter last year. Profitability has rapidly shot up as well, to $6.1 million in the latest quarter, from $1.75 million last year.
In that regard, Beneficial Mutual’s strong investment profile is simple: a company that is outperforming many of its peers. Mike Shafir, an analyst with Sterne Agee & Leach, who also covers the stock, notes the company has managed to substantially cut expenses and reduce its ratio of nonperforming assets relative to total assets, while at the same time growing income, loans and deposits. This is not a bank that has avoided the troubles plaguing the industry by sitting it out: it has demonstrated an ability to maintain a brisk business in a troubled market.
However, in addition to its strong fundamentals, the company has also over the past year undergone significant internal changes that have also bolstered its position.
Beneficial Mutual took its shares public last year, in a process known as a demutualization, which banks often prefer over traditional IPOs. Demutualization converts banks from mutual holding companies that are owned by their depositors to public companies partly owned by shareholders. The process differs in many ways from that of a standard initial public offering, but like an IPO it also provides the company with a large cash infusion to help further grow its business.
Almost immediately after Beneficial Mutual completed the sale of shares to the public last year, it acquired FMS Financial Corp., the parent company of Farmers & Mechanics Bank located near its corporate headquarters, in Burlington, New Jersey.
Then last October, its insurance subsidiary, Beneficial Insurance Services LLC, acquired another insurance business, CLA Agency Inc. Both acquisitions have served to accelerate growth.
The final component to this company’s positive investment profile is a little more complicated, but essentially has to do with the different ways markets tend to value mutual holding companies and publicly traded banks. Analysts say that mutual holding companies typically sell at lower multiples than regular banks, and that even though Beneficial Mutual went through the demutualization process a year ago, it is still selling at a slim multiple relative to some other banks.
Boenning & Scattergood’s O’Donnell says that over time, markets should correct this discrepancy, sending Beneficial Mutual’s shares higher.
As with any stock, this one comes with a number of reasons for caution. Most notably, it has already enjoyed a strong run, suggesting that it is no longer as undervalued as it was when analysts issued their glowing reviews. The stock has already surpassed the $12 price target Sterne Agee issued in May, and at its current stock price, it is very close to the $12.50 price target Boenning & Scattergood set in early July.
While that could limit near-term growth potential, both research firms believe this is a company that has endurance and a bright long-term outlook.
“I have a positive outlook on this stock three years out,” said O’Donnell.
About the Author
Contributing author Andrea Orr has worked as a financial and business journalist for more than 15 years in New York, Los Angeles and northern California.
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