I expect strategic change that may be forth coming. Dr. Strickland's been a director for a while now. I am wondering if it'll spin off the financing arm.
You will remember that at the time he was nominated a director, Dr Strickland said that the bank has competitive advantage. ( I had a vague idea when I looked at the record for the past 12 years and found that it had a heck of interest margin, something indicates a strong franchise.)
Through the grapevine, Mr. House is both disciplined and also going after the market.
4Q13 was indeed rough. Unperturbed, I have doubled my investment in USBI.
PS Also added to SZBI. Mr. Fields did a wonderful job there.
From what I saw, the ones that were forced to sell all had serious capital deficiency. I won't lump GFED in with them.
Other banks, especially thrifts, sold out because they did not have prospect of earning a fair return, especially under new regulations. For example, thrifts are now under the supervision of OCC. (used to be under OTS.) OCC doesn't cut them any slack just because they are thrift. Many are forced to sell out.
Would GFED feel like to sell? I don't know. But if I have to guess, no. A merger would most certainly cost Burke his job. There are many displaced bank CEOs that had to change career. Last I heard, the ex. CEO of SBAZ was selling real estate. Burke is only 51. He's make the case for staying independent no matter what.
By the sweet heart deals he made for insiders--home loan at near 1% APR, etc.--he's got the ears of the board.
Many banks took the route of your second proposal, i.e., sell shares at a discount to pay tarp off. As this shortens the struggle, it may be an easy sell to the board, especially if it allows insiders to buy in cheaply. I don't think it's good for shareholders, but its so painful shrinking balance sheet and pay TARP off with retained earnings...Besides, who doesn't want to run a bigger bank?
I own some shares of SZBI. SZBI has dominant shareholders and resolved to stick it out. SZBI looks to be able to pull it off although it'll be several years before it gets to pay TARP off.
Another one is GSON. Which is weak but also decided it'll rather suffer than to dilute existing shareholders. They get my vote of confidence.
In the case of GFED, I am afraid the existing shareholder would get the short end of the stick.
That was mainly due to the $4 million it raised in 2Q13. It somehow did not hit the balance sheet until 3Q. Neither the reduction of TARP off it total share holders' equity.
The bank did not want to broadcast how cheaply it floated the shares to insiders. Per my estimate, at roughly $15 per share.
Under "normal" income tax rate, the bank is earning 8.5% return on equity. Given equity is around $15.5, "normal" earnings is roughly $1.30, or $0.95 after TARP dividends.
Valuation at 10 x PE, may be around $9.5, but why not wait for earnings to improve and valuation approaches $15 before floating new shares? What have I missed?
Usually a pending sales would give a holder roughly 20% annualized return. Check the date against the upside to see if this is indeed the case, then decide.
I have never follow that rule as I always find other things to buy.
Opportunities are not abundant like they used to. So maybe I will start to adhere to my own advice.
Greetings. Hope all is well in NC.
Hard to provide a link or copy and paste, so I just use this old thread.
Never quite figured out the actual number of shares issued, but this explains the jump in share count.
We will find out from annual report for sure.
4Q13 results were solid. I am pleased.
It's been that long?
We all came a long way since that earlier times. First Star Bank was where I cut my teeth, right here in Lehigh Valley.
Several mortgage lenders start to perk up. I still think its too early to get back in. Price, of course, is a big factor.
The recovery of poorly run banks has been uneven. Most of the cheap ones reported poor results. I guess the market knew it better than I, they are still depressed.
You know I am a fan of LGHT as well. I sold out at $8.5 (before stock dividends) two years ago. That was a little below book at the time.
The reason for my selling had nothing to do with the bank itself. LGHT was doing fine. It was that I felt I could do better with more levered banks during the time of recovery.
Two years later, economy found its footing, It's probably time to get back in the better banks.
By now, operation at LGHT improved immensely. Pretax, pre-provision rose past 2% on asset and now at 2.4%, beating 95% of banks. This was achieved by doing all the right things--hold onto low cost deposits (only slightly behind SCZC), charge adequately for loans, very tight credit standard (NAL & OREO are both zero), keeping overhead extremely low*, etc., etc.
Now it start to build a second branch at a better location...I can only see good things happens to it.
Some may be taken aback with it heavily into CRE and C&D loans. I like to point out its stellar credit history and it's solid financial. T-1 stood at 14.34% at year end.
With it earning 1.44% on asset and it only levered 7 to1, ROE was only 10%. This may change slightly for the better as it levers up a little and also increases loan to asset from 63.35% currently.
So, how much is it worth? I believe it's worth more than its book value, probably even more than the current quotation. Note LGHT is still very small and there is plenty of room for growth, a nice compliment to the healthy ROE.
I was looking to buy a few months ago but did not have the money. Now that I have the money, it went away.
Hope I get another chance to buy it near book value.
* For a bank with $160M in asset, there are only 19 on its payroll. Other overhead are very low too. It spend only what it had to spend. As a percentage of asset, its overhead is 0.50% lower than its peers. This translates into $0.8M advantage over peers pretax, or $0.5M after tax, annually.
Off the soap box,
Hi, Mr. Bottom,
With economy improving (I know, I know, too slow.) I was surprised to see so many banks reported higher NAL this quarter.
There may be explanations beside weak borrowers, who has been weak for years..
Severe weather in 4Q may be hard on some folks financially.
Too, many borrowers are facing higher note payments and the marginal borrowers were further marginalized.
The last one that I can come up with is house cleaning. After all it's the end of the year. This way they can start with a clean sleigh.
I am not sure which factor affects who and how much. CLBH reported an ugly quarter too.
Surely expect a better first quarter.
Per my recollection tangible book value is around $7.6. Only 18 months earlier, when the bank was weighted down by large credit issue, the shares went for $2.
I sold some in the $2's because I needed the money. The last bit was sold at around $5. I did not see the sell coming. Most likely I could not.
I wouldn't beat myself up. Like you said, there are many moving parts.
I share the same hesitation about dilution, but there should be a distinction between good dilution where each share becomes more valuable than the ones which takes away the value. Unfortunately, too often they belong to the second category.
When you have a business that has strong "moat" and room for expansion, the general rule to issuing shares (for any purpose) should be never. MeKee Foods, the owner of Li'l Debbie snacks is a good example. McKee is privately owned.
On the other hand, banks are competing freely and behave more like commodity business. Here, if new capital can be used advantageously, why not? Prudence is required.
There are other forms of dilution that takes place within the business. EMYB just increased its pension liability to three key employees. If this is not justifiable, shareholders lose.
GFED reported earnings in line with your expectation. Congratulations!
It did provision a little heavier which masked the improvement in core operation. PT-PP ROA was near 1.55%. If you recall it was barely over 1% when we started the discussion on the bank.
Part of the improvement came from the reduced expense related to problem credit and OREO. This, I think, will shrink a little more.
I have not seen much. And I don't expect much.
Community banks seldom have large fee income. Their performance are still burdened with weak loan demand an tight interest margin.
The ones with mortgage operations did well the past few years, but that has changed. Few generates significant other types of fee based activities. Even if they do, margin tend to be low in insurance, trust service, backroom processing, etc.
Like insurance, you don't always get the best rates from leaders like State Farm or GEICO, they constantly winning and losing customers. You do whatever is best for you.
Banks assess customers and based on their own book of loans and other factors to decide on loan application. For example, if one is loaded with residential loans, it may want to stretch a little to make commercial loans but not residential loans. Or, suppose one find the employer of the applicant to be somewhat shaky...It's more than just the applicant.
A good bank for investment and a good place to obtain loans are not always the same. However, a good bank for investment tend to have served their customers better. I hope you find LGHT appealing as I do.
Thank you all for the thoughtful discussion.
For a start up, there are many hurdles. However, to earn a good return is of immediate concern and LGHT has delivered. Not only that it did so with solid deposit base, prudent lending, and conservative finance. Even accounting has been conservative where it over reserved a little and it did not need to provision lately despite the growth of loans.
Like Pete stated, the bank shot the light out on performance. I think that's the key. Diversification is of concern. It's bound to the SC area but it can diversify loan portfolio, etc. I have to trust the management. They have done a great job. I don't see why that will change.
Stock may not have reflect its value, but if you were the buyer, more power to you. Price will catch up with value, sooner or later.
Great discussions form all of you and I appreciate that. Happy new years!
Helloo, Mr. BM,
With a big assumption of $0.30M provision--VS $0.60M for 3Q13-- my guess is that CLBH will report $0.20 in earnings; without provision, $0.25.
Loan production and margin probably stayed flat.
Mortgage income was $4.5M last year. It may have come down to around $2.1M.
This may be offset slightly by the reduction of credit collection and OREO management cost.
Mortgage business, though less profitable, should remain a contributor. We should see a rebound on loan demand and interest margin going forward. Profitability wise 4Q may be the deflection point or maybe soon.
What I can't see is how profitable it'll be in the future. Maybe the days for it earning 2% pretax on asset already passed, I don't know. I am sitting out on CLBH, and GFED too.
INBK needs to get its efficiency up. It can grow the business, but without high returns it inevitably will need to raise more money and dilute the shares further. As a result per share earning may not grow nearly as well as the bank itself.
My short still stands. You are right about the difficulty of guessing the exuberance of the investing public. My strategy is averaging in over a period of time. My second short is due shortly after 4Q results.
Refi market did not drop as much as I expected. Though it's already at 17 year low, there is still room to weaken. There are far fewer people who can benefit from refi now.
As to purchase financing, the activities have been rather constant in the past, be it good market or bad market. Revenue from that source does not change much except 12 to 18 months earlier when margin was abnormally high.
This position will not make me much money. Even less, if it takes a year or longer to play out. We shall see.