This bank has had the highest appreciation of any bank stock in the state of California for the past 10 years. We, as shareholders, have made a lot of money I am glad the president is being well taken care of. If he wasn�t he would open another bank across the street and we would have a shell. Another way of looking at it is that if you had an employee that you agreed to pay one dollar for every tem he made you would you want to put a cap on his bonus?
While the majority of the loans are commercial real estate they are also SBA and are occupied by the borrower or his/her business. They also have low advance rates. Their residential construction loans are at about a 60% advance rate. Charge offs are well under peer.
The efficiency ratio must be higher than normal as their growth rate has been about 30% per year. You cannot grow a high performing bank with an understaffed bank. The officer staff that is hired has generally been the management team of a bank that has recently sold out to a larger bank. This has contributed to this incredible growth.
The BOLI came about a couple of years ago when the president gave up part of his option and bonus program for this retirement program. It looks to me he packed his parachute and when he bails out and sells the bank it should sell at about 20 to 23 times P/E or $31.00 to $35.00 per share. While this would make us all a lot of money where could we find a replacement invest that would perform this well?
"This bank has had the highest appreciation of any bank stock in the state of California for the past 10 years."
I know one bank, VNBC, that has considerably outperformed TMCV over the last 5 or 10 years. Take your pick. However, it has also flattened out, partly because of considerable growth and the costs associated with growth and partly because, I believe, there is some concern about CRE going forward in CA.
"We, as shareholders, have made a lot of money I am glad the president is being well taken care of. If he wasn�t he would open another bank across the street and we would have a shell."
I don't mind a CEO being properly compensated. What I do mind is egregious compensation. People seem to forget that it is the CEO's job to grow the bank and appreciate the stock price. Incentives are fine but excessive bonuses and stock/options grants are signs of poor oversight from the directors. The CEO's 2005 bonus was 4X his salary and 40% higher than the year before. While there was a pop in the stock price in the middle of last year, the stock has stagnated ever since. I actually think, as CEO of a $1 billion bank, his salary is too low but his bonus, as a percentage of his salary is in the stratisphere. Your comment regarding this CEO moving on and the bank losing business is absurd.
"The efficiency ratio must be higher than normal as their growth rate has been about 30% per year. You cannot grow a high performing bank with an understaffed bank."
Completely untrue. Well run banks that are grounded in fundamental cost controls can grow substantially without large efficiency ratios. There are many examples. It is called sound management. When you see banks use the growth excuse as an explanation for dramatic increases in expenses, it is usually a sign of problems elsewhere.
Thanks for the explanation on BOLI. I'm not so sure whether a $20 million bank-owned life insurance policy is appropriate for the CEO, but I don't know all the circunstances. I sure would like to know what this bank is doing with an SBA I/O strip on its balance sheet. Is it a hedge or a way of improving NIM?
I came across this bank because it was listed at the top of an article in "US Banker" on community banks. I, too, am interested in putting my money in sound financials. This bank has some great metrics but, at the same time, it also has some disturbing numbers & balance sheet items that are not well explained or justified.
Someone check me on this, but I think the SBA I/O (interest only) strip is recorded as part of the SBA loan sale, and is not a purchased hedge. It's basically an accounting entry that values that portion as a financial instrument, separate from the servicing asset, which is basically a receivable, and the gain on sale.
Also, I would argue that a 60% efficiency rate, while not stellar, is in-line with a growing franchise.
Is anyone concerned about their dependence on SBA loan sales and the problems at the Small Business Administration? Obviously, the flat yield curve is not good for banks in general.
It was interesting to read your comments on my posting. As a person who has served on 4 bank boards as a director, chaired 2 of them and the president and CEO of 2 of them I am more than just an investor. The first bank where I served as presidnet did not pay me an average base or and there was no incentive program so I quit taking my SLO and CFO as well as my best staff members and we formed a new bank. I paid all of my officers less than market but they had an excellent incentive program. The board gave me the same deal. If I had a high base and a low incentive it may have not worked out as well as it did. Absurd? I think not. The bank I left had a steep decline in their stock value that never came up to the level it was at when we left. They saved salary dollars on my replacement but the bank sold out as they could not compete with us. If you have a bank that is growing at 5 to 10 percent each year you can run understaffed or on a lower staff and get away with it. When you grow at 30% per year you hire when you find the right people that can create that growth rate and profitablity. Have you ever gone into a store to buy something and you cannot find anyone to wait on you as they are all too busy? Banking is no different. Untrue? Did you wait or did you leave? Each of us looks at banks differently. I look at P/E ratios, growth, charge offs, past due loans, officer turnover, and various other things. I never look at the presidents wallet. You get what you pay for and if he make a buck in incentive for every 10 he makes for me I would happy to pay him twice what he is making. Think about it, would you not feel the same way? How do others feel?