Interestingly, FCBN reported average weighted shares outstanding of 844,129 at 9/30/12. Then on 12/19, purchased 160,834 shares for $490 per share from a single investor. The transaction should certainly help eps going forward.
Wow! I missed the FCBN buy back announcement. During the front end of December, I was actually watching FCBN website for an announcement about a year-end special dividend prior to the Fiscal Cliff. After mid-month the holidays kicked in. (In any event, I’m generally so busy that I just try to buy right since I can’t follow every move on the ticker).
Much has been made recently about Mr. Buffet relaxing his standards to buy back Berkshire Hathaway stock, which he recently revised from 110% to 120% of book value. Now, it’s been a long time since I studied finance, but if a bank like FCBN--trading significantly below book value--buys back almost 20% of its stock, this effectively supercharges operating results for the remaining stockholders. Wow, $490 / share for the block. I love the buyback! (This is much better than a special dividend).
Truth be told, I did sell a little (20%) of my position into the strong run-up last week. Before you judge, I was one of the intrepid souls who bought those shares back in the low $400s last year. In the past, I have found that selling a little on the way up, to reinvest in some better values, is just good portfolio management. I'm long and strong on the remaining 80%.
With regard to Farmers and Merchants (FMBL), it’s one of the finest franchises on the West Coast, 105 years old. Trading at 80% of book value, it does things the old fashioned way, like lend at 50% LTV on real estate. Didn’t take TARP and never had a year in 2007 – 2012 when it lost money (I don’t believe it even had a losing quarter). At well under $10 billion assets, with 2x the capital of a very well-capitalized bank and mostly commercial customers, I look at FMBL as being insulated from many potential regulatory risks from Dodd Frank (i.e. Durbin amendment, stress testing etc.).
About five years ago, a number of dissident FMBL shareholders—I believe that they were scions of the founding family--forced a Dutch auction for outstanding shares. The bank paid a pretty penny for their shares--as well as some held by the general public--and then went back to making money according to the same old tried and true formula: taking deposits and lending money. What a concept!
The question is, what happens when the dissident shareholders are gone, you have almost a 30% Risk-Based Capital ratio (that’s not a typo—it’s nearly three times the regulatory requirement), a portfolio of well-collateralized loans with loan loss reserves over 2.50% of outstanding loans but no loan growth, a bond portfolio with some embedded gains (mostly bought before rates fell) and the next generation of the founding family who controls the bank are mid-career (having many more productive years left at the helm)?
My answer to that question: buy FMBL and forget it, just like FCBN. It’s a classic Rip Van Winkle Stock for guys like me that are torn in many directions, but know their way around a financial statement. I typically research and build a position over years, not months. As you say, a franchise that continues to preserve and grow shareholder value, even a closely-held pink sheet stock, eventually will have an event that recognizes that value “one day”. I also own a good bit of QUCT, a stock related to FMBL, but that's a topic for another day.
As for FCBN, the remaining action in 2013 will probably be the mid-year redemption of the maturing TRuPs. But you never know: the selling shareholder may have balanced the board of directors, and the law of unintended consequences often applies.
Do your own due diligence,
Since I own both FINN and FCBN, we obviously think alike. (I'm not familiar with FMBL though, so anything you can tell me about them would be appreciated. Conversing here will be like using the pony express as we check in every month or two).
I thought FCBN's recent purchase of 19% of the outstanding shares was fantastic.
This is an illiquid bank, but at a 16% earnings yield and 74% P/TB, I can easily live with it.
It's my largest bank holding by far. I own cheaper banks, but they are much smaller and even more illiquid.
I'm hard put to find a better combination of size, value, and earnings power.
This is truly a one day stock. I don't expect it ever to trade at a premium valuation, but with a historical 15% ROTE for 15 years, that normalizes earnings at $111/share. With low rates and more regulation, I don't think they will get there any time soon, but I suspect we will see $100 EPS in the next few years and a reasonable 9x provides a nice return.
This is one of those stock I don't care much about the price. If it performs operationally like it has in the past (or anything close to it), I hope it stays cheap forever so I can own it forever.
Hello, my Ayn Rand-inspired friend. Those are some good ones to research; I will look forward to doing so. My next favorites (and both currently held) are members of the rare Four Thousand Dollar Club: FMBL and FINN, if you are willing to venture west to Southern California and Omaha, Nebraska, respectively. FMBL has always paid a dividend, but FINN just reinstated one mid-year after managing through a capital squeeze. Both paid a special dividend in December. (FMBL could literally distribute half of its capital and not miss a beat). Much the same as FCBN, my confidence starts with the character of the controlling shareholders: the Walker and Lauritzen families. FMBL still a nice "buy" in my view. FINN has a more volatile operating model with credit cards, now more of a "hold" in my view. Hard to find any institution that makes me very excited these days. Finding loan growth and increasing fee income is a so tough for any bank in this environment. Happy New Year! Ray
Sentiment: Strong Buy
I'm interested to know what your 2nd and 3rd favorite are...
FCBN is my largest personal position and the largest position I have in the accounts I manage. Some other interesting banks I've followed and/or own: BMBN, NYCB, SUBK, PKBK, OZRK. Some of them like OZRK are not cheap but have good track records.
Sentiment: Strong Buy
I may not know everything about financial institutions or investing, but on a relative value basis, this bank seems special. About a year and a half ago, I looked at almost 800 banks traded on the pink sheets. In my judgment, FCBN was one of the prettiest ladies in the cotillion, and in my opinion she still remains a very solid purchase today. I have bought more since my initial purchase.
Numbers for third quarter 2012 reveal another fine year underway. The bank had one-time gains from the bond portfolio, but underlying income is OK. There’s accounting fog from servicing rights, but the bank had nice mortgage originations. It still trades at an amazing discount to book value (about half) and P/E is very low (less than 8).
Except for a couple of kindred spirits who also have posted on this board, there seems to be absolutely no constituency for this stock. Shares are priced over $500, with little liquidity, so the odd-lotters and day-traders don’t play in this sandbox. Ownership is concentrated among insiders, so a takeover seems unlikely. Yield is well under 1%, so the income / dividend crowd is absent. No SEC oversight, which creates a taboo for those who run scared without big brother to look out for them.
There’s no shareholder relations area putting on sexy presentations or any analyst touting the stock. Even the rare group of value bank investors who are interested in opportunities “off the grid” seem strangely absent. I could be crazy, but I’m still calling this a solid franchise, with a decent management team who are maximizing shareholder value every day, trading at a substantial discount to other simularly-situated financial institutions.
Sentiment: Strong Buy
Nobody follows this stock. Its my largest holding in my portfolio. I've owned since 400 in 2009.
Great track record. Trades undervalued because its otc. Its 2x as big as it was when it delisted...I think its a matter of time before it relists. I would think the regulators would frown upon a large bank not being listed, for ease of accessing the capital markets in case of an emergency.
Not sure if you knew this, but FCBN leases their back-office systems from FCNCA. Would be a no-brainer merger with huge synergies. Obviously the family has kept the two separate for their own reasons till now, but it might not be that way forever. The family merged a couple of the subsidiaries a few years back ('07, i think), which is significant because they have to give up a banking license of one of the subsidiaries in the process.
Hello, I had an opportunity to add to my position during the recent decline down to sub-$400. Didn’t catch it at the bottom (I bought at $435), but when it fell further, I really wished that I had more cash on hand to back up the truck.
I can’t believe how far FCBN has flown beneath the radar since it de-listed. Just as I was surprised during latter part of 2011 by the relative out-performance of FCBN compared to its cousin from up the road, FCNCA (First Citizens in North Carolina), I have also been surprised that FCBN has not followed FCNCA as enthusiastically higher since year-end.
FCBN’s announcement of the $2 special dividend (just went ex-dividend) did create marginally more interest in the stock. But I’m still wondering how many people read through page four of the press release since about two weeks ago to see that nice little nugget of good news?
There are some risks here: Dodd-Frank might compel redemption of the trust preferred for common equity over the next several years, loan volume is weak, net interest margin is squeezing tighter and non-interest income is still moribund due to lower mortgage originations and the Durbin debit card beat-down. But many banks facing these very same issues trade at stronger valuations.
FCBN has a strong presence in South Carolina and a nice position for the eventual recovery in Atlanta (yes, I really did dare to say that). With the FDIC loss-share from Georgian Bank, there is not much downside until then. FCBN did not take TARP and has been profitable through the mess over the last five years. The bank has a good relationship with the regulators, fine management and a solid balance sheet.
Even with the recent resurgence in share price, by my calculations, FCBN is still trading at around fifty percent of book value (still very much a value in my book). Although I may be the only one willing to be a valentine this year, in my opinion FCBN may be everyone’s sweetheart again some day.
Do you own due diligence,
Nonsense. If you knew this and disclosed it on a public message board you'd be breaking securities law.
This an extremely well-run ( i.e., conservative ) bank that is controlled by a family that has no intention of ever selling. If you are not willing to hold this security for decades ( or more ), you shouldn't buy it.