Saturday, September 21, 2013

Made an investment in National Bankshares

Please read the disclaimer here: Enjoy the article, bitches!

I recently took a position in National Bankshares (stock quote: NKSH). While National Bankshares may not double or triple profits in the next few years, it has a solid foundation and it throws off good and stable profits for shareholders. I can’t exactly remember at what price I bought the shares, but it probably was somewhere around the current stock price of $35.78 a share. I could look through my messages from my broker to find the exact price at which I bought the shares, but that would mean I have to get up from bed and look for my phone.

The bank generates strong returns on average assets and equity of 1.59% and 11.42% (figures are annualized) respectively for the 6 months ended June 30, 2013. The bank’s return on assets is even in line with Wells Fargo, one of the most profitable banks in the United States. I don’t know if it’s exactly right to compare a smaller bank like National Bankshares to Wells Fargo, but Buffett seems to think that it’s awesome and I think that Wells Fargo is pretty badass myself.     

Part of the reason for the bank’s strong performance is that while its net interest margin of 4.27% is higher than Wells Fargo’s net interest margin of 3.47%, it still manages its credit risk quite well. The bank’s net charge-off ratio was 0.49% for the six months ended June 30, 2013 as compared to Wells Fargo’s net charge-off ratio of 0.58% for the quarter ended June 30, 2013. The figures in this paragraph are all annualized.

National Bankshares charge-off rate hasn't only been lower than Wells Fargo's in the short-term, but has been lower over the past 5 years as well. For the 5-year period of 2008-2012, Wells Fargo's net charge-off rate was between 1.17%-2.30% while National Bankshares net charge-off rate was only between 0.1%-0.49%.

Another reason I like the bank is that it has a large deposit base to fund its loan portfolio and other investments; the bank’s loan to deposit ratio was 62.66% as at June 30, 2013. The bank also has very large capital buffer to absorb losses. The bank has tier 1 and tier 2 capital ratios of 21.8% and 22.9% respectively as at June 30, 2013; the minimum capital requirements are 4.0% for Tier 1 capital and 8.0% for Tier 2 capital. 

No comments:

Post a Comment