One of the hottest growth stories in all of small cap "bank-land"...Great franchise, unbelievable demographics in lending area, probably the best profitability metrics out of any bank in the US (2.25+% ROA and 33% ROE), excellent nationwide SBA program..and not to mention unbelievable EPS growth...and the kicker is they're trading @ 12.5x a conservative '06 estimate...and not to mention the CEO is 65 and owns a ton of the stock (can you say seller)...
Hardly any institutional ownership....however, the bank will present in 2 weeks @ the San Fran banking conference for their first time in front of institutional investors....think they might like a 12.5 P/E growing at 30-40%
Better get while the gettin is good...the stocks @ $30 by the end of September...they will impress at least one or two institutions and the stocks illiquidity itself will be 2 points as they begin to buy in.
Yeah, the Board pays Wacknitz rather nicely as well, $1.45 million last year, which I think is on the high-end for banks with comparable, low market capitalizations and asset size. I believe his bonus is based on 6% of net income, which for obvious reasons, lends itself to potential problems.
....and with all the senior/executive level overhead and new employees that the company has brought on over the last 9 months, it will be interesting to see what their Q3 earnings reflect. The bank's employee base has grown tremendously this year due in part to SOX and the bank's attempt at ramping up their SBA lending operations. Note to all that in a rising interest rate environment, 7(a) lending takes a beating as portfolio run-off is rampant and the program is less attractive to borrower's due to it's required variable rate tied to Prime. This could have an affect on earnings in future quarters as TVB relies heavily on 7(a) loan sales for revenues.
Steve Wacknitz hire's strong personnel, but he pays a premium over other banks to get them. His mantra is, "You Need to PAY to PLAY". So far it has worked out for him and the bank. But the heart of this institution is people like Thomas Shepherd (Chief Credit Officer) and William McGaughey (Chief Operating Officer and relative new-comer from Bank of the West). Those two are the key components behind the scenes keeping this machine going on a day-to-day basis. So, forget the B.O.D. - my money is on employees like Shepherd and McGaughey to keep this bank strong and on a profitable path.
We can speculate all we wish and it does no harm. The earnings for this 1/4 will tell us how good the management is. If the curve continues up, and we have no reason to think differently, these guys will be terrific.
I agree with you, PV. As long as they still have skin in the game, I see no problem (quote from Warren Buffet). It looks like these sales are from the exercise of original stock options that might have been close to their exercise dates. Also, we must remember that bank directors and executives, like anyone else, need to diversify their assets. In my experience, these guys tend to have too much of their eggs in one basket. I supposed I'm somewhat biased on this point, though.
Yes, the word on the street is that Steve Wacknitz, Luther Mohr, and all the directors and executives at TVB are top notch.
HB, You seem to be close to this bank. What are the downside exposures to TMCV?
We have more in TMCV than I like to think about and have been acquiring for more than three years. Will increasing interest rates depress SBA earnings? On balance, what negative exposures do you see. We know about the good stuff and the past, however we buy and hold for the future, right? Thank you for your thoughts.
Not to steal HB's thunder, but thought that I would contribute my 2 cents on the subject...
Even though SBA lending is counter-cyclical to the economy, the secondary market typically remains strong for the purchasing of SBA 7(a) loans during a rising interest rate environment. The biggest issue that SBA 7(a) lenders face with rising rates is "runoff" of their existing portfolio of loans (i.e. other lower or fixed-rate lenders providing more attractive product for borrower's, enticing them to refinance their SBA loans into conforming/conventional loans).
About 7-8 years ago, major banks like BofA and Wells Fargo secured a list of SBA borrower's and began soliciting them with their fixed rate programs. SBA 7(a) loans (which are variable and tied to Wall St. Prime) saw a wave of refinancing from other lenders. This is what SBA 7(a) lenders expect to see again in the near future.
But it's important to note that TMCV provides a considerable amount of 504/SBA lending as well, in which they basically sell the first to a participant lender and are completely out of the deal within 4-12 months, depending on the project. 504's are all fee income driven and no loans remain on the books for long.
I think that TMCV will continue to do well in the SBA arena. There has been some management changes in that department, but all are good, experienced people. They will be fine.