No surprise. Earnings was $0.523 million, down from $0.689 million in 4Q15, but beat the $0.494 million in 1Q15.
However, it did not come from shrinking interest income as I expected. Margin did compress but it was more than made up with bigger loan pool.
Loan grew by $9.446 million from 4Q15 but provision was only $49K. Again, it did not penalize earnings by much.
Non-payroll overhead did not go up as I expected either. Maybe the Bank capitalized all expenses related to the new headquarter.
Surprise, but it shouldn't be, With the return of Mr. Sisk we have now 22 people on payroll VS 21 in 4Q15. Payroll went up by $53 K in 1Q16. Maybe Mr. Sisk is paid nearly $200K per year?
True, earnings is down. But I am encouraged by the loan growth. Maybe Mr. Sisk is already making things happen?
To put in perspective, residential real estate loans originations numbered 6.5 million loans per year in the four years leading to the bust. We are now at about half of that. LION's mortgage concentration was a good strategy. It still is.
ALC experienced seasonally soft quarter. That usually rebound by 5% to 10% in the second quarter. No worry.
Overall, portfolio loans grew strongly for two quarters in a row. Though loan yield was somewhat soft.
Beside land, new office by Mountain Brook may cost $11 million inclusive of equipments in 1/4 of the 40,000 SF space. The rest are for rent.
The location is great. Access may be somewhat wanting. But there is no more land in the stretch. That's that.
All the heavy weight are now in the rented space nearby. It's in good mortgage market. Why not do mortgage banking? But then it is geared up for commercial lending, the people and all. Will be great if it can lever up in the next two years.
Loan portfolio is only half of its asset. Then asset can expand due to low financial leverage. Exciting things can happen.
A good quarter if we read between the line.
Earnings has been strong. No complains there.
Credit and OREO has been stuck in the mud.
This $5.5 million OREO on a condo development in Absecon is troubling. Absecon relies heavily on Atlantic City, and Atlantic City is dying.
Stock dividends is a gesture, nothing more.
Shares drifted upward since two years ago, now near its book value of $4.80.
The bank was shaping up but still underperforming. In today's market similar bank would fetch less.
Me think a sale is coming soon and someone is buying because of that.
FWIW you are welcome.
I am afraid the original subscribers will still lose big. $10 to $2, yikes!
The conversion and the reverse split is typically done simultaneously. Sometimes there is no split.
Ben Franklin Bank of Illinois (BFFI) ($11.25) was a good example. BFFI converted in early 2015 at roughly 3 legacy shares to one new share at $10 (subscription price) per share. I vaguely remember that book value was around $16 per share right after conversion. After some losses, book is now around $14.5. The losses kept a lid on share prices.
Another, Quarry City in west Missouri (QRRY) ($12.00) did a little better. Again, subscription price was $10 per share. Initial book value was around $17. QRRY is somewhat profitable. IMO the shares did not rise further because QRRY has only one branch and shares are very illiquid.
There are reasons to believe that HTWC will be more like QRRY.
As to merger partner, I don't have any idea.
The area is in long term decline, consolidation makes sense.
The larger and better known thrifts also convert from time to time but shares usually pop right away. NECB, WFD (2006) are examples.
In general, thrifts earn smaller interest spread and have little fee income. As a group, they are less profitable than , say, commercial banks. Even in better times, I suspect thrifts do not earning enough to justify holding at near book value. Today, I'd probably sell them at 80% of book value.
In spite of the potential of a turn around, I bought only a small position for that reason.
Hi, Mr. Thrifts,
Glad you are around or I'd be talking to myself.
From the numbers I'd agree with you, but "the board continues to review all strategic alternatives."
If we look at the loss trend (charge offs), the sizable troubled asset appears less of a concern.
The board understand the credit better than any outsiders and will probably do the second stage conversion "when the time is right".
(Yeah, they know they can flip it for 50% gain in two years.)
I place 95% probability on conversion, if not, a merger is possible. More likely, merger would take place after the conversion.
"Time is right"
if credit is all reserved for and if the insiders have their own financing ready. Once you see a large reserve, it's time. A large reserve is not a prerequisite.
With second stage conversion, bank sets a conversion price at, say, $2 per share. Immediately after the conversion, book value would be around $3.5 per share. What's more, allowance on deferred tax asset will most certainly be restated which may add $1 per share--$1.93 before dilution. We'll end up with an over-capitalized bank with $4.5 per share book value.
The unknown is the conversion price. At $2 per share we'd be fine, at $1 per share we'd end up with far less.
It's a general rule to buy in after the conversion. Converted at $1, my shares would be worth only $2 and traded at $1.2. However, many who bought in at $1 probably would be happy to flip it for a small gain like at $1.2. I can then add with confidence.
$2 or $1 are used to illustrate the changes in value. It's customary to set the price at $10 and have the existing share converted to a fraction of new share.
But first let's look back.
LION had a sizable mortgage department. After the recession rate induced refinance demand was high and it grew mortgage many folds. Mortgage banking peaked in early 2013. None the less LION forged ahead. While resale margin weakened since then, it was able to maintain mortgage revenue by making more mortgage loans. Because of that, the bank was able to maintain its profitability in spite of the narrowing lending margin.
So, why is it attractive now? IMO mortgage will continue to contribute to the bottom line AND net interest spread started to firm and may well continue. Better results may start to show this year and the next.
Shares are not cheap. If one should adjust for the imminent dilution from the large in-the-money warrants, book value may be around $12 per share.
In spite of strong refinancing in the first half of 2015, ROA was only 1.13% for the year. But here is my speculation: With the $75 million new subordinated debt, it can grow lending side and it did some so far.
(Just hope its shares stay up on the next acquisition.)
My expectation for the year is 1.2% ROA. We shall see.
A caveat, leverage is a two edged sword, I am betting on better results but I can be wrong (and get killed.)
Bank has proven management.
Congratulations. $9.5 to $16.0, you called it.
It's been two years and the subsidiary bank managed to earn 8% ROE in 2014 and nearly 10% the next. Never the less, shares steadily rose. Hm.
While mortgage banking was pulling the load, the results has been lumpy. From the reported numbers, we can infer that its mortgage banking has high fixed cost and it got caught in 2013/2014 and to a lesser extend 4Q15.
I still like the mortgage banking strategy and think it should be less lumpy going forward. However, refinancing boom is over and we should only expect gradual improvements.
SBA lending is still in its infancy. Scale is important and it will take time.
The bank is fully levered. Without more leverage, maybe we can see 12% ROE this year? The low rate environment will keep a lid on banks' lending profit this year and fee income will only grow moderately.
Someone once asked why Boswell sold early in 2014. On hind sight he knew that a large option was coming and selling at triple of his cost to repay debt made sense.
IMO the shares are not expensive but any rise will depend on its progress.
Disclosure: I have not been a shareholder since early 2013.
In all due respect, I think you missed the point. It's not the talent or resolve...
LUK made a macro bet on inflation, especially on energy. As deflational force sets in, LUK, even with its talented people and efforts, is lucky to have stayed afloat.
That said, it'll adapt, probably quicker than the turn of oil. Oil, I surmise, may take a decade to turn.
Ask this, Buffett is no dummy, why does he partner with this "looser"?
Adjusted for potential losses book value is probably higher than $16. and it has no risk of going out of business. I may not go hog wild but I certainly won't bet against LUK.
Don't know what happened. That was supposed to be "Mr. #$%$".
Mr. #$%$ is the founding CEO some thirty years ago. His smallish equity holding of UWHR shares is much larger than any board members. While he himself is not on the board, he controls.
The sale was planned for at least two years may be much longer.
Several years ago, the three subsidiary banks each went out secured some long term debt. The banks were then consolidated into one. I think it was done on purpose.
Two years ago the holding company started to modify change of control clause.
The past year it dissolved the Employee Stock Ownership Plan.
Only recently, the board approved issuing a rather large stock option.
All these led me to believe that a sale was forthcoming.
A good round number for buy out would be $5 per share IMO. Mr. Robat said it'll be more. I won't argue.
Closed at $4.25.
Hm, a whole year behind schedule.
Maybe Mr. #$%$ was holding out for better offer and the mortgage department did not disappoint. Just look at Mr. #$%$ on the company calendar, in front of the mortgage group.
Note seven months earlier, Mr. #$%$ was granting 500,000 options (8% dilution) at no higher than $3.68 per share. Those options would be worth some real money when it comes time to sell. I can only guess who got the bulk of those options.
The Bancorp is leveraged with $7+ million subordinated debt and $6.8 million TARP. The subsidiary bank has a history of low return but the parent engages in NewMartket fundings, etc. and "earned" some award monies from the Treasury from time to time It's the only one of its kind left standing in Baltimore since two other similar banks disappeared.
TARP is still outstanding and the bank is weak. Is the Treasury willing to trade the TARP for an equity stake? It did so with Broadway Bank in Los Angeles. After all, the Treasury is ready to wrap this TARP program up and there is political pressure to keep the bank running.
--all number approximate--
HTWC lost $1.62 in the past two years. By year end 2015 book value was around $3.21 per share. Per my estimate the unrecognized "tax asset" "grew" to $1.93 per share.
The bank showed small profit since 2Q2015, If this should continue there may be a chance that this deferred tax asset (DTA) will be recovered. If so, book value will exceed $5.25.
Many obstacles remains. The lingering credit issues, the consent order, the resolution of lawsuit by the ex-VP, etc. all can derail HTWC.
DTA is not counted as T-1 capital. The subsidiary Bank raised T-1 to over 6% primarily by shrinking asset.
IMO It is unlikely to shrink further*. At some point it'll make sense to do a second stage conversion**--raising capital from depositors at an advantageous price. This would increase book value but dilute its DTA.
Shares rose somewhat recently. Investors seems to share my "guarded optimism,"
While troubled asset remains high, loss trend was excellent, Which allowed some release of ALLL.
Overhead remained very high but that was cushioned by non-interest income from its mortgage banking activities.As currently configured, it may continue to earn a small profit.
*Portfolio loans already exceed 80% of asset. reducing asset also means reducing its loan, therefor its interest income. This won't work.
**A sale may not be easy, as potential investors would have trouble estimating potential losses from NAL and OREO.
--With an outright sale, tax asset may be lost due to change of control.
--If raising capital through investment bankers it may be structured to preserve tax asset but is a hard sale to potential investors.
--Logical but not easier to do is the 2nd stage conversion. This also will benefit the constituents of MHC which owns 52% of shares.
The company reiterated that "the board continues to review all strategic alternatives" with every quarterly report. IMO The dust is not quite settled for the move yet.
Proxy is out. The deal appears fair. Strictly from equity point of view CBCO "bought" some equity at 18% discount of its own and paid them with shares valued at slightly above book value.
Merger price is relatively low in this all-stock merger because CBCO is far more profitable.
The real gain for CBCO is in the cost savings near term and the eventual duplication of its "success" in this new market.
Success was in quote because CBCO's own community banking, too, barely tread water.
However, if CBCO can provide mortgage banking and SBA loans through these new locations, it may well be worth the dilution (of its earning power.)
I'll vote for the merger, also will keep an eye on any "benefit" derived from this merger.
Granted, the results in 1Q is seasonally weak, this merger will dampen the results further. Patience is called for.
This new location is surrounded by the four USAmeriBank, now Alliant Bank, locations. Which J, Samuel Henderson was in charge until recently.
The one near Lake Purdy (also along Hwy 280) grew nicely, increased deposit from $59 million to $90 million in just four years.
That stretch from Birmingham zoo to Lake Purdy is a good mortgage banking market. Maybe USBI will start a mortgage banking operation from there? I wonder.
USBI bought a 2.92 acre lot for $2.95 million along Hwy 280 southeast of Birmingham between Birmingham Zoo and Hwy 459 which is in the fringe of Mountain Brook, the wealthiest area in the State. The location(area) is excellent and the new construction may take a year and cost $6+ million.
While I like this strategic direction, I was expecting baby steps like setting up a loan production office, then moving to a branch facility on a long term lease.
True, the area is very expensive and rent would be high, however, capital outlay for this one location will cost $10 million, pretty big for a bank with $76 million capital. USBI is betting the ranch.
All eyes are on J. Samuel Henderson III now.
As outside investor we don't know enough to judge. The success of its new commercial loan center in Tuscaloosa--which accounted for the bulk of $17 million increase in loans during 4Q15--probably encouraged the board as well. still, I am uneasy.