A bank would be seized only when its capital is exhausted. BAOB is short of capital but is in no danger of going belly up. Regulators can give it hell but won't shut it down unless credit sours rapidly which is not in the cards.
The share price is getting close to where you can take a flyer. If you do, you're betting that dilution would be small.
I wrote about five large holdings early last year.
WIBC promptly ran up and was sold.
JFBI met the same fate.
The latest one was CLBH. I was premature about CLBH* but there were opportunities elsewhere. No regret.
That left USBI and CWBB. They both have good future, especially CWBB**.
One large addition this year was PKBK. It too may have good future. CWBB and PKBK are growth banks with good returns. (I hope they can grow on retained earnings without raising capital.)
While CWBB garners good margin, PKBK is extremely good at cost control.
Though it slipped a little, efficiency ratio*** at PKBK was still only 44%. Efficiency ratio at CWBB* is around 50%.
* Head count at CLBH increased by 7 from 208 in 4Q12.
** CWBB added 4 persons from 73 in 4Q12. My earlier cost was $6 per share. I added some at $15.6 recently.
*** Efficiency is expense as a percentage of gross income. The less it spend (pretax), the better.
My concern is that impending capital raise will be seriously dilutive because buyer can pretty much set the price. The fear of such already caused the share price to go down, but that will also give excuse for the would-be buyer to buy at even lower price. Lower price begets still lower price.
For those who is bottom fishing, the above factor can turn a good bargain into no bargain.
The only salvation for existing share holders is for the bank to turn in consistent profit. Only then can BAOB float new shares at a somewhat less depressed price. Dilution is certain, just not so severe.
BAOB is not well run but has been around a long time. It has value slightly above it's capital.
There were 30,000 shares traded recently at lower price. Maybe share price will be higher after the recap, but that's still a long way off. You may get indigestion while waiting.
I have looked at BAOB for some time. Never bought any.
After the @ 2 million losses in 1Q13, book value is down to $0.15 per share.
The allowance for tax assert is now $9.5 million, or $0.30 per share.
IF the bank should be profitable again, the allowance can be put back to equity.
So, what's the total? $0.45 per share.
True, it did some house cleaning in 4Q12 and 1Q13 totaling $3 million, however, allowance for losses is still inadequate.
Even if it is, you are paying near "book" value for a struggling bank, with further dilution at $0.30
Did I mention that this is not even profitable?
You made some very good observations. Thank you again.
Steered away from mortgage originators this year myself, for the same reason you cited.
(I left the board for a while, hence the late reply.)
I figure I have no advantage against the pros in the large cap arena.
Is there any small bank, I mean the nano caps, that catches your fancy?
Wonderful, I love bargains.
Upon closer look...
Per share book value was -$1.36.
It earned a negative $0.35 million in 1Q13 before provision and credit related costs, pre-tax.
I start to have cold feet.
Looks like my selling was premature.
Upon reading the report, two things came to mind:
Though I don't believe the hyper profit margin will return, there may be legs to this mortgage operation.
The management stays focused as always.
The short answer is NO.
But let us put it in perspective. Some of the revenue is through financial processing, which is is labor intensive and low margin. If we strip them off, UNIB's number will not be that low. I suspect it's still the lowest.
A tiny Allied First Bank (AFBA) in Chicago, actually Oswego, runs a call center for credit union clients. Its P/S is also out of whack. I do not recommend it. It'll need to raise $5 million in capital and dilution can be huge.
UNIB has the highest potential that I know. But, as Mr. Ranzini stressed in the earning release, regulatory burden is huge.
In banking, as in insurance, you really never know about the next blow up. It's a percentage game that some play well, others don't. But you never know in any given time.
You can fault Burke of not forthcoming on a few occasions and on a few blunders, but the theme for investment does not change.
It has book value 50% above current quotations.
Its credit problem is receding.
The turn off for me is the lack of earning power. Pretax, pre-provision operating income was stuck at 1.1% on asset, way bellow peer average of 1.7%.
The bank held on its interest spread by lowing interest cost. It held down expense too. What it need is to make profitable loans. Easy said than done.
Interest income down a little, in line with smaller loan portfolio. In the face of low interest environment, I'd think it did well.
None interest income was up a little. Encouraging.
Overhead was up. I'd think this should be the norm going forward.
Overall profit was up primarily due to $0.10 million lower provisions from 4Q.
The most encouraging part is the improvement on charge offs. If this were to continue, JFBI may get to reverse part of the allowance for losses (ALLL).
It's not improving as much as I earlier expected. Given the environment banking is in--low margin, sluggish demand, low employment, regulations, etc.--JFBI held up well.
I no longer own shares, but I'd be disappointed if it doesn't move higher a year from now.
My predictions for 1Q13 were all wrong.
Loan growth did not happen.
Interest margin did hold up. That's not so bad considering national average showed downward pressure.
The saving grace is the gradually improvement on troubled asset.
Since the allowance for losses is so huge, at $19+ million, any slight change in the resolution of problem loans will have a huge impact on reported earnings.
Worth noting is that credit is improving, albeit slowly.
Pretax, pre-provision operating income was $5.1 million in 4Q12, it shrunk further to $4.6 million.
This was largely a much reduced non-interest income. We won't know the cause until 10-Q is out. Do note that 4Q12 numbers was unusually large.
Even $4.6 million represents an annualized 2.4% on average asset, still an outstanding number.
Oops! Just in case someone passing by...CLBH would have been able to negotiate a price for warrants at $4 each, not $3.
I used to say the $0.3 million annual compensation to directors was the best used expense. Well, it went up to $0.5 million in 2012. Hope it does not stick. 2102 was the best year the bank has ever had. But that is not to repeat. Neither should the directors' perks.
While it's good to buy back warrants, the timing of which is off. CLBH could have done this as soon as TARP was auctioned off and pay $3 per warrant instead of $5 per warrant.
The "11 investors" are getting a sweet deal with similar term as TARP. Seems to me, CLBH's common shareholders, are best served by paying off all or part of those debt ASAP. I wonder if the negotiated notes would restrict the bank from early payment. If so, management maybe giving too much to those "investors" which no doubt include many insiders.
They way I see it, CLBH is in a good position to sell another preferred to pay these "investors" off, but elected to do it the "easy way". This maybe legal, but is wrong.
Pretax , pre-credit, was $1.35 million. Much is left to be desired.
earnings, after 20% income ta and preferred dividends, was $0.25 per share
However, book value went up by $0.15.
I did not look at it close. Nothing strikes me as exciting.
Good analysis. Thank you.
Stripping off the non-repeatable portion of earning this bank is a 10% earner.
There are other banks. Why JPM? Just curious.
I am not trying to change your mind. A review of 10-K on segment break down (pp 91-93) makes me think...What if the business reverse to where it was in 2011, or 2010?
Maybe I just don't get it.