There registration statement indicates a diluted book value per share of $.92 if the entire offering is sold. Community banks with problems are selling at less than 30% of book value. So do the math: if the offering is successful, expect the share price to drop to less than the $.44 offering price since that would be nearly 50% of book value. That is not going to happen. Why? The bank still has risk of failing in the next couple quarters as more problem real estate is appraised and reserves set aside for those losses. The Oregon and Northern California markets are hurting badly so don't expect any recovery in values or the prices the bank will obtain on Other Real Estate Owned.
So buy now? No, if the rights offering is successful the price will drop further.
Buy later? Maybe if you feel the bank will get through their problems, but another quarter or two of losses with more set aside for loan loss reserves, will completely delete the $36 million being raised. That risk is very present with this bank.
Don't buy? Withe the huge stock dilution, the present owners may average down their cost per share, but any chance of the stock price trading over $1 for the next couple years is pretty doubtful. Why? The number of shares outstanding converts to a low book value per share and the stock market isn't pricing community banks at upwards of 50% of book. It will take years to get to a couple bucks per share. Better to sell and expect to recover the realized loss in another performing bank.
Sell? Short sellers may expect to continue to hold another quarter or two to see if the bank fails and close out at no cost, ie $zero purchase price per share. Looks probable for the shorts to hold for a quarter or two. The number of shorts sellers increased after the rights offering was announced; they'd expect to play this out for a while.
This bank isn't paying back TARP money, isn't paying the Tarp interest payments, and after this stock offering, if successful, is very unlikely to be able to access the capital markets again until there is a complete turnaround in this bank's performance. TARP was actually their first capital raised. The rights offering is the last ditch effort to save this bank.
Time will tell, but prospects don't look good for any increase near term in the stock price if the rights offering is successful. And if successful, the bank will have to do a reverse stock split to get their stock price above $1 per share per NASDAQ rules.
As others have written, Anhorn will have to convince standby purchasers that all the problems are identified and appropriately reserved. Any major buyer would want to replacement management to get their own assessment rather than relying on those Executives that failed to identify the seriousness of the problems. I'd expect that to happen if the rights offering is successful.
Anhorn and his toadies on the board are just a bunch of good 'ol boys in WAY over their heads. When it was just a tiny community bank, they could handle it but once their delusions of grandeur took over and they thought they were "players", their incompetence became clear. They all need to be gone.
Stockchart. I'm glad you are selling. Thanks for all your insights. I'm sure you are 100% correct. Obviously the rights offering will fail for all your astute aforementioned observations. Hey, you never know... Ed