The stock is too illiquid to unload my position, so I will probably hold all shares and pray for recovery. I wouldn't be surprised if the share price gets hammered. I guess now we know why treasury couldn't sell.
Not really sure if there are any many positives to this report.
.34 EPS LOSS
I thought this was interesting, "However, during the third quarter we made significant progress, reducing problem assets nearly 43% and lowering the nonperforming assets to total assets ratio from 6.4% to 3.7%. We continue to aggressively work to eliminate the challenging assets as our core operations remain steady in the slowly improving economy," said Shaun A. Burke, President and Chief Executive Officer."
If they lowered NPA's by 43% before major loan's defaulted than it would be great news, I can't believe he is trying to spin it as a positive. Prior to the 2nd quarter earnings, GFED had $27 million in NPA's. Then with the 2 problem loans totaling about 14million, they had $42.1 million in NPA's.
By provisioning them as huge losses and no longer classifying it as a non-performing asset, it's not really a positive thing. Only positive out of it was it appears besides the 2 big problem loans, they were able to reduce NPA's down by another 3-4 million.
We have no specifics on that portfolio loan how much was secured by the worthless fraudulent scheme, and how much was secured by commercial real estate, although it seems like a large percentage was secured by the worthless portfolio.
We also have no specifics on if the 7.3million loan regarding whether they modified the loan and got the properties performing again.
Non interest expense was a killer and it was not a great operational quarter as net interest margin decreased. Interest income was down substantially as well compared to 3rd quarter of 2011.
We are now -.36 for the last two quarters. If I had some type of assurance that they will do nothing to dilute shareholders with TARP I would feel a lot less unnerved. I don't think it would be such a bad thing to pay the 9% and pay off TARP when they are in the right position to.
Their equity cushion is now a lot less at 7.65%. They have I believe $12million in TARP left. I would hate to see any type of offering at $5-$6. That would add 2.2 million shares to the existing 2.68. Shareholder's would be screwed. Since the company has seemed to be cognizant of what an offering would do to the share price and to loyal shareholders I am hoping they will not even have a common offering on their mind.
In the end, I think at some point GFED will recover and thrive. But my main concern now is their treatment with TARP, I could sleep okay at night if there were public assurances that they have the shareholder in mind. We didn't see that in this report, but I truly hope they do.
I truly hope they can get the NPA's under control and really turn things around again.
Chris I agree with your assessment about the next few earnings periods. I don't see why there would be much upside for a while now after this last report. I was expecting this report to have more downside in share price. When it did not I tried to unload a portion of my holdings the past two days. Fortunately, I was able to sell a majority of my holdings without much share price movement. I still own some in my IRA. I do not know the effect of those two NPA's and how long they will strain earnings. What I do know is this stock is not heavily followed, and when the real turnaround continues again I will be here to load. I believe in the long term of GFED, but at this point as I don't see any upside imminent, I have chosen to secure my profits and use the money elsewhere for the time being.
The mathematics aren't too difficult. They will almost certainly lose 7M on the fraud loan, which is about $2.60 per-share on just ONE loan, not to mention other large problem loans they've made. How long will it take GFED to earn $2.6 per-share? One, Two, Three years? I don't have an answer for that, but by the time they pay that off, they'll be facing the rate hike on their TARP loan most likely, so that's another issue to work through.
The fraud loan was so questionable it makes me wonder weather there was criminal involvement by the originator of the loan. (I'm probably just sounding like a conspiracy theory nut job right now, lol) Would YOU have put double-digit percentages of the bank's equity on the line for a shaky loan with NO DEED OF TRUST? Nobody with a brain would have done that. Whoever approved that loan is either incompetent or on the take IMO.
I think the basic elements of the quarter were what I expected for interest income and expense. The problem on the noninterest income issues were the write downs on existing loans and the losses on ORE, otherwise noninterest income would have been strong. Provision also sucked. All of the things dealing with probelm credits. I am unsure what to say regarding this, but the problems don't seem to be abating as I expected. Credit quality has to be the banks sole focus.
Regarding dilution I don't expect that to happen. As they said in the annual mtg last year and in the announcement of the partial payoff of TARP, that they don't expect to dilute shareholders. However the scenario has changed, since earlier this year, namely the fact that they have earned $2.5 million less in the last two quarters than I had expected. But I agree with you, as an owner, I would much rather pay 9% for a year to year and a half rather than dilute.
As a shareholder, I would definitely like to know more about managements strategy going forward regarding returning value to shareholders. We will see what happens.
Thank you, Gentlemen,
What Mr, Munger said rings true with me. We can't know the extend of credit issue, but we know it'll manage through this. Core earning power--pretax, pre-provision, ex. one time items--on average asset remained at 1.45% .
As Mr. Work suggested, because of the set back, TARP may hang over its head, for a lot longer. :-(
Well the problem is that we don't "think" they will dilute shareholders, but their assurances were based upon strong earnings and capital cushion moving forward. Instead they've had loans blow up on them and are not in nearly as a strong financial position anymore like they once were.
It took forever for management to come out and discuss their TARP plan. Unlike most other quarters, even the CEO didn't seem to offer much confidence. They really need to outline their TARP plan, as any type of offering would really kill existing shareholder's and price, and quite frankly they have the option to just pay the 9% and deal with it until they are ready to float an offering much closer to book, or pay internally.
The credit quality has always been the story with GFED, but no one expected these issues so far along in the cycle. They really need to tighten their loan criteria. Reality is it was less than a $1million loss, and due to the small O/S -.34 looks very bad, but those numbers can turn to positive real quickly. However, correct me if I'm wrong, but there will probably be continued provisions on that loan secured mostly by that fraudulent security portfolio right?
I personally think even though you all disagree, that they should sell their NPA's in a package, take the write down, and then start earnings $2+ a share after...
Buffet what do you think about the long term future of GFED not only for financial strength but share price? Am I being too blinded by my large position to see straight? The capital cushion is below that 8% that I like, but at the same time I feel like if they can just somehow improve credit a little they could do very well. Or are we just seeing the start of possible real credit concerns?
I'm trying to figure out the worst case scenario. If they were to float 2million shares, it seems they would then in good times be limited closer to $1 EPS, so in the long long term maybe a $10 share price, but a world of hurt in the short term.
I think if there were some assurances from management that they will not dilute shareholders then share price will hold up much better. Maybe I'm concentrating too much on TARP, but I don't think I am.