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 $2.5 billion, respectively.
While we believe these goals are attainable, we have grave concerns about the future profitability of the institution as the company works to achieve these growth metrics. As the company continues to increase its branch network we believe non-interest expenses will rise. In our opinion, additional branches coupled with a fiercely competitive lending environment and additional regulatory scrutiny will continue to suppress profitability.
We examined Metro’s potential profitability metrics for 2015 using the company’s stated goals. Based on our analysis, we believe the company’s 2015 ROAA, ROTCE, and Efficiency ratio will equal approximately 0.70%, 8.2%, and 74%, respectively. These profitability metrics are well below similarly sized peers in the Northeast and Mid-Atlantic regions. As displayed in the exhibit below, median ROAA, ROTCE, and Efficiency Ratio metrics for peers equal 1.07%, 12.0%, and 60%.
| Cls. | Total | Implied | ||||||||||||||||||||||||||||||||
| Price | Assets | Mkt. Cap |
|
Cal. P/E Ratio (x) |
Est. 2015 | 2015 | Eff. Ratio % | TCE/TA | Core Dep./ | Div. | ROAA | ROATE | ||||||||||||||||||||||
| Company | Ticker | State | 6/12/14 | ($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% | - | |||||||||||||||||
| Mean | 453 |
16.7 |
14.6 | 12.6 | 1.09 | 12.5 | 60 | 180% | 8.6% | 80% | 2.5% | 1.04% | 12.1% | |||||||||||||||||||||
| Median | 395 |
15.6 |
13.8 | 12.5 | 1.07 | 12.0 | 60 | 169% | 8.9% | 86% | 2.8% | 1.06% | 12.9% | |||||||||||||||||||||
| Metro Bancorp, Inc. | METR | PA | $22.52 | 2,850 | 319 |
19.3 |
17.1 | 15.4 | 0.67 | 8.2 | 74 | 133% | 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