First West Virginia Bancorp

01/16/2014 5:00 am EST


Our top pick for 2014, from our bank stock universe, is a safe, stable bank that pays stock and cash dividends; it also has the potential to eventually be a takeover target, says Doug Hughes, editor of The Bank Newsletter.

Insiders at First West Virginia Bancorp (FWV) bought shares last year, and already own a ton, almost 30%. The stock pays a nice 4.6% cash dividend and has a low float of only 1.25 million shares with 1.72 million shares outstanding.

The book value is just under $21 a share. With the stock trading at 77% book, the shares are cheap, and a deal would be at least 1.15-1.30 times book, or around $24-$27, so this is a safe bank to invest in at current levels.

The bad news is that loan growth is almost zero—negative really. The president is 74 years young and the bank is 40 years old, which makes it ripe for a takeover, since he owns almost 11.65% of the stock himself, and they paid a 4% stock dividend at the end of last year.

The salaries of the top three guys are very low compared to their peers, something we love, but less fat to cut in a deal. They will want to get paid one day, so a sale has to be coming, since they are not making loans.

The stock has done well the past five years, compared to most bank stocks. Allowance for bad loans at 2.19%, and net charge-offs under 0.10%, is very solid.

There is no reason for the bank not to sell, if they can get a fair price, which should not be an issue for them.

For now, we recommend buying just enough to get a nice position in it. Could it be dead money for a while? Of course; but that is your worst case situation, which is not so bad.

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