News Column

Clover Partners LP Sends Letter to the Board of Directors of Metro Bancorp

June 13, 2014

DALLAS--(BUSINESS WIRE)-- On June 13, 2014, Clover Partners LP sent the following letter to the board of directors of Metro Bancorp (METR):

June 13, 2014

Gary L. Nalbandian

Douglas S. Gelder

James R. Adair

John J. Cardello

Alan R. Hassman

J. Rodney "Rod" Messick

Howell C. Mette

Michael A. Serluco

Samir J. Srouji

(the “Board of Directors”)

Metro Bancorp, Inc.

3801 Paxton Street

Harrisburg, PA 17111

Dear Board of Directors:

Initially we would like to commend management for guiding the company through a tumultuous banking environment and resolving the previous regulatory orders issued to the bank.

Furthermore, we appreciate the company publicly announcing long term growth goals in terms of loans, deposits and assets. Based on the May 22, 2014 presentation, the company looks to attain 2015 total assets, net loans, and deposits of $3.3 billion, $2.1 billion, and $2.5 billion, respectively.

While we believe these goals are attainable, we have grave concerns about the future profitability of the institution as the company works to achieve these growth metrics. As the company continues to increase its branch network we believe non-interest expenses will rise. In our opinion, additional branches coupled with a fiercely competitive lending environment and additional regulatory scrutiny will continue to suppress profitability.

We examined Metro’s potential profitability metrics for 2015 using the company’s stated goals. Based on our analysis, we believe the company’s 2015 ROAA, ROTCE, and Efficiency ratio will equal approximately 0.70%, 8.2%, and 74%, respectively. These profitability metrics are well below similarly sized peers in the Northeast and Mid-Atlantic regions. As displayed in the exhibit below, median ROAA, ROTCE, and Efficiency Ratio metrics for peers equal 1.07%, 12.0%, and 60%.

      Cls.   Total             Implied              
PriceAssetsMkt. Cap

 

Cal. P/E Ratio (x)

Est. 20152015Eff. Ratio %TCE/TACore Dep./Div.ROAAROATE
Company   Ticker   State   6/12/14   ($Mil)   ($Mil)  

2013

 

2014

  2015   ROAA %   ROTCE %   MRQ   P/TBV   MRQ   Total Dep.   Yield   LTM   LTM
Bryn Mawr Bank Corporation BMTC PA $28.99 2,060 396

16.1

15.7 14.1 1.24 11.8 60 215% 9.2% 90% 2.5% 1.28% 16.6%
Center Bancorp, Inc. CNBC NJ $18.63 1,676 305

15.5

18.8 12.5 1.25 10.7 48 209% 8.8% 88% 1.6% 1.17% 12.9%
CNB Financial Corporation CCNE PA $16.45 2,134 238

12.7

11.8 11.0 0.95 14.1 59 169% 6.7% 88% 4.0% 0.89% 13.3%
Eagle Bancorp, Inc. EGBN MD $32.33 3,804 840

18.5

16.1 13.8 1.35 16.7 52 240% 9.2% 87% 0.0% 1.36% 12.6%
Financial Institutions, Inc. FISI NY $23.10 3,016 320

13.3

12.0 10.8 0.91 13.9 57 164% 6.6% 74% 3.3% 0.93% 13.2%
Lakeland Bancorp, Inc. LBAI NJ $10.67 3,387 405

14.8

13.3 12.1 0.93 12.1 61 164% 7.6% 89% 2.7% 0.84% 11.9%
OceanFirst Financial Corp. OCFC NJ $16.02 2,282 278

15.7

13.2 11.8 0.94 10.1 65 129% 9.5% 87% 3.0% 0.72% 7.7%
S&T Bancorp, Inc. STBA PA $24.33 4,707 723

14.3

13.6 12.8 1.14 12.7 59 179% 8.9% 71% 2.8% 1.15% 14.1%
TriState Capital Holdings, Inc. TSC PA $13.72 2,542 394

32.2

18.9 13.4 0.98 10.9 65 161% 9.6% 58% - 0.65% 5.3%
Univest Corporation of Pennsylvania UVSP PA $19.79 2,201 322

16.8

14.1 12.4 1.10 11.5 66 151% 9.9% 85% 4.0% 0.97% 10.2%
Washington Trust Bancorp, Inc. WASH RI $35.26 3,194 587

15.9

15.0 14.1 1.31 14.1 60 215% 8.7% 68% 3.3% 1.22% 15.1%
WSFS Financial Corporation   WSFS   DE   $70.08   4,546   624  

14.5

  12.3   12.4   1.04   11.4   65   169%   8.2%   78%   0.7%   1.23%   -
Mean453

16.7

14.612.61.0912.560180%8.6%80%2.5%1.04%12.1%
Median395

15.6

13.812.51.0712.060169%8.9%86%2.8%1.06%12.9%
 
Metro Bancorp, Inc.METRPA$22.522,850319

19.3

17.115.40.678.274133%8.4%92%-0.68%7.9%
 
 
Source: SNL Financial and Clover Partners Estimates
 


Furthermore, based on Metro’s most recent 10Q disclosure, the company’s net interest income will not increase in a rising rate environment. As of March 31, 2014, over a twelve month period, if interest rates increased 100bp, 200bp, and 300bp, Metro’s net interest income would decline 1.32%, 2.11%, and 2.75%, respectively.

In light of the aforementioned profitability metrics and a decline of net interest income in a rising rate environment, we believe Metro should seek a strategic partner. In our opinion, Metro’s core deposit franchise and geography would garner a substantial premium to its current share price. We believe there are multiple larger banks with strong currencies which would vie for the opportunity to enhance their franchise through an acquisition of Metro. Based on recent terminal multiples in similar geographies (transactions in excess of $75 million deal value), we believe Metro is worth $29-$30 per share in a sale (171%-179% P/TBV).

We are aware that two other large shareholders have recently filed Schedule 13-Ds. We agree with these stockholders’ concerns and urge the board of directors to retain an investment bank to explore strategic alternatives to maximize shareholder value.

Sincerely,

Johnny Guerry

Partner, Clover Partners LP




Clover Partners LP

Kerri Webb, 214-273-5212

Source: Clover Partners LP


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