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Community
banks – they are vital to the growth and prosperity of our towns and cities.
These banks are an important link in the economic network that fuels progress
in the communities where we live and work. Through their local lending
efforts, they provide housing and create jobs for millions of Americans
in manufacturing, retail and construction. All the while, they remain
big employers in their own right. The concept of community banking,
as codified by The Community Reinvestment Act, developed quite naturally:
A local bank was founded, and when money was deposited there it became
available to be reinvested into the community. That money went back to
work again and again through loans made to friends and neighbors, who
were thus able to realize their dreams of financial success. Having done
so, they would increase the amount of their own bank deposits, and so
on. This cycle has repeated itself
over and over throughout America’s history. Whether in this century or
the last, banks have usually been formed by a mix of local businesspeople,
farmers and other citizens. They come together to accomplish two things:
to serve their community and, in doing so, to provide a return
to the shareholders of the bank. They are well positioned to attain
heir goals: banks have great leverage and require very little start-up
capital as compared to many other industries. Most community banks are
financed with less than $10 million (that’s fewer than one million shares
at $10 per share). A bank usually begins in one location, expanding only
as it becomes advantageous to do so. Profits are accumulated, adding
to the organization’s leverage as well as its ability to make new loans.
Once added, other locations are able to collect even more deposits that
in turn are invested into loans or other investments. The growing cycle
has thus been ignited. Exciting investment prospect?
Absolutely. But where do you go to find out about these stocks? With
fewer than one million shares outstanding, there is generally not enough
trading activity (sometimes referred to as float) to be listed
on a stock exchange or NASDAQ. Additionally, there is little institutional
interest because there are simply not enough shares available for the
large purchases that these investors must be able to make. The payback,
on their scale, is just too small. And so community banks have remained
undeservedly obscure, their information not readily available in a usable
format for investment analysis. Walker’s Manual of Community
Bank Stocks has aimed to change that. We believe that early discovery
of these banks allows for investment before share prices are greatly
increased by more active trading. Many respected investment experts recognize
the value of this strategy. Walker’s Manual covers numerous real examples
not unlike our hypothetical bank: having issued the first million shares,
it has had a few stock dividends and one or two splits. Now with three
million or so shares trading, it is becoming more active, and one of three
things will happen. The bank could become listed on one of the exchanges,
almost always resulting in an increase in the stock price. Alternatively,
it could be acquired by a larger bank, often at a respectable premium
to its current trading price. Fully 20% of the banks from the 4
th
through 6th editions of Walker’s Manual of Unlisted Stocks*
(as well as from both the 1st and 2nd editions of
Walker’s Manual of Community Bank Stocks) fell into one of these
two categories. Lastly, the bank might simply keep it shares in the over-the-counter
market as it continues to grow. * Community Bank stocks were covered in their own separate book under two editions – Walker’s Manual of Community Banks Stocks. The number of banks covered was reduced and included with in Walker’s Manual of Unlisted Stocks book starting with the 4 th edition. Since 2005, community banks are now covered separately again – though this publication is included for free currently with the purchase of Unlisted Stocks.
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