Oxford Bank: Undervalued On An Absolute And Relative Basis

I have met a lot of investors who focus on highly speculative companies in far of regions of the world, where a local ‘edge’ does not exist. If you have a significant amount of experience, and actually have an edge handing speculative start-ups, well, hats off to you. My investment style is a little different. I like boring companies, with predictable cash-flows and a clear undervaluation.

Small community banks fit my investment style almost to a tee. They are boring, not many investors care about them and they fly off the radar of most Wall Street professionals. Additionally, sometimes you can find interesting investments right in your backyard.


Oxford Bank (OXBC) is a nine branch bank located in the thumb of Michigan. The bank has been around for over a hundred years, with current locations in Oakland, Lapeer (my current hometown) and Genesse Counties. Moreover, the bank is the oldest commercial bank in Oakland County.

Back in 2009, the bank hired a turnaround specialist, James Best, to keep the struggling community bank on its feet. Since James Best was hired, he has turned the bank into a profitable company, grown the loan book, and increased book value by more than a multiple of two.

With the recent hiring of David Lamb as the new CEO, the bank is now back on two feet and ready to grow.

If the bank continues to perform well, shareholder value may be realized. I suggest you watch the 2015 annual meeting shown below, for the informational ‘local’ edge.

Recent Achievements

The year of 2015 was a type of inflection point for Oxford Bank. They effectively went from flat asset growth, to a 21.46% increase in total assets. Furthermore, by the time 1Q16 rolled around, total assets increased an additional 3.20%, QoQ.

In 2015 pre-tax earnings per share increased 75% YOY from $0.77/share to $1.35/share. In context, pre-tax earnings are used given the company realized a $6 million deferred tax asset recovery in 2014, which would skew EPS to $6.11/share.

For almost a decade, the company has deferred spending to save the bank. However, in 2015, the company invested back into the bank and finally stepped into the technological age of mobile banking. In 2016, the company plans on investing in Interactive Teller Machines, which will not only make the bank more productive on the labor side, but will allow their Personal Bankers to focus on customers.

The company also plans to rapidly grow going forward, given the M&A environment. Management stated the following in 2015’s annual letter, which somewhat alludes that the company may make some bolt-on acquisitions…

“Your Board and executive leadership team intend to aggressively grow the Corporation while the opportunity created by continued mergers in the banking industry exists.”

If acquisitions are not up the company’s sleeve, the bank’s other strategy is to grow and develop valuable employees. Specifically, the company has honed in on their recruiting efforts to bring high quality managers and leaders to their team.

From 2014-2015, net loan and lease growth grew 16.58%. Additionally, in 1Q16, net loans grew a strong 5.43%, QoQ. However, when looking at CompleteBankData’s software, we can see that the loan growth came almost wholly from the construction and commercial real estate side of the equation.

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On a ten year scale, 1-4 family loans has continued to lose more and more foothold in the market.

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If family loans don’t pick up the slack and if commercial real estate tapers off, total loans may start to see a reduction, pressurizing the stock price. Although, if you have read the 2015 shareholder letter, then you can contest that management has specifically stated that they are focusing on commercial/industrial companies. Management simply states that with commercial and industrial companies, it is much easier to build a long-term relationship with a borrower, than with investment real-estate focused borrowers.

Oxford Bank’s non-current loans to loans, bottomed out in 2009 at 9.22%.

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By 4Q15, they hit a low of 0.36%, with a slight rise in 1Q16 to 0.49%. The reason for the increase QOQ is due to an uptick in family residential noncurrent loans. Investors should continue to monitor this metric going forward. Despite the QoQ rise in noncurrent loans, the rapid reduction in noncurrent loans over the past five to six years is a positive sign and shows that the bank is in turnaround mode.


The most attractive aspect about Oxford Bank is the discount to P/TBV.

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The company is also undervalued on a relative basis…

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However, the reason the discount to P/TBV exists is due to a lower quality operating structure Oxford Bank has to its peers.

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It could be argued that Oxford Bank is more attractive than its peers on a risk/reward standpoint. First, the market has not revalued the company from worse case to a more normalized scenario. Secondly, sometimes the largest gain an investor can realize transpires from when a company goes from the negative sentiment to normal; not from good to better.

If Oxford Bank can continue to improve metrics going forward, there is real potential the company may trade with its peers in the next 2-3 years. Although, if the company doesn’t continue to improve, and most importantly, cut non-interest expenses, Oxford Bank may lag its peers going forward.


Oxford Bank is a bank that I have seen in my backyard my whole life. The mid-Michigan market is not the greatest in terms of economic growth. However, if the company can continue to grow assets, lower non-performing loans and eventually increase profitability metrics, the discount to P/TBV makes for a compelling case. On the flipside, if the company continues to raise equity, sees additional increases in non-performing loans and doesn’t lower non-interest expenses, the company may lag its peers going forward. Oxford Bank is a tough nut to crack, but the bank should definitely go on your watch list as cheap banks in turnaround mode.

Note: The bank is literally a few miles drive from my home. I plan on reaching out to management going forward. If any investors are interested in more due diligence feel free to message me.

Nick Bodnar

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