You are right that $28 is too low, however, Berkshire never pay fair price. If this advance take hold, it could be $30 offer but that's stretching it for Buffett.
USG's earnings is ready to pop and shares have not reflected that. Berkshire's take over will not cause it to lose deferred tax asset which amounts to $7(?) per share. Once USG put the DTA back on the book, which can be soon, shares will no longer be cheap for Berkshire to buy.
Excluding management who would like to keep their jobs, other insiders own 10% of outstanding shares. They may resist selling.
Seven large institutional shareholders collectively own 27% of the shares and some maybe just as happy to flip them. I'd say the chance is good that shareholders will vote for a sale. It'll be cash offer and that leaves no upside.
I'll sell into strength.
$200,000 only covers six months worth of expense on TARP and other debt at the Parent level. It'll need another $200,000 this quarter plus the $100,000 pay down on its debt to another bank. Would the subsidiary Bank get the approval from regulators to do it again? It's still under consent order and written agreement. If I recall, the Parent has a small amount of money to cushion the shortfall if any.
Without new capital, SZBI depends on the release of those regulatory orders and it is not assured.
Yeah, the good ole days. Didn't Berkshire backstop a new issue deal at $45? Anyway, USG had 5 million shares out at the time, it has triple that now. Maybe each share could be valued for $15? That would be simplistic because USG is far better positioned than ten years ago. The flip side is that housing start is only 1.1 million unit VS historical norm of 1.6 million units. Commercial is in normal range which helps.
IMO USG still have lots of upside. My concern is that Buffett is going to steal this baby. If this should happen, holding past $30 would be precarious.
TARP and the related Warrants were auctioned off by the Treasury (6-29-15). The buyers paid a few dollars less than the total that SZBI originally received. In effect they got the unpaid dividends (which SZBI still owe) for free.
TARP $2.760 million. The exercised warrants $0.138 million. Arrears at five year anniversary, $0.400 million. Additional unpaid dividends (9% for 1.0045 year) $0.277 million.
Total face value at auction (6-29-15) was $3.575 million.
Selling price was $2,722,050 and for warrants $165,618. Total auction price was $2,887,668, a discount of $687,332, or 23.8% of the buyer's cost. Plus, the buyers earns 9% on 123.8% of their purchase price, yielding 11.14% on top of the eventual appreciation.
If paid off in lump sum in one year, on their investment these investors gain 35% due mainly to the discount they paid; two years, 53% accumulated: three years, 70% accumulated. As long as SZBI survives these sum will eventually need to be paid.
If SZBI got much more profitable SZBI would then be in the position to 1) pay it off from earnings or 2) raise capital at lower rates to pay them off. In that case TARP investors will not be willing to sell back at much discount if any.
If SZBI is too weak and unable to make payments, both sides are stuck. Seems the only way out is to find new high cost debt or equity capital to replace TARP. In so doing, it might get a better discount. Ideally, this should be equity capital, but shares are traded at less than 50% of equity value and the dilution will be unpleasant. Raising debt will require regulators' consent.
4Q15 & 1Q16 may see mortgage weakened. (SZBI survived and survives on its mortgage banking income.) Cushioning that, some bad asset may get cleaned out and that reduces overhead. Further, some troubled debt may be upgraded to allow it to recognize the interest previously paid as earning. That may carry the bank until next Spring when things improve.
Back to hibernation.
You made a valid point.
I am not familiar of the events for the past several years. I apologize for being lazy,
how many others have average cost above $30?
Took a long time to make the move to Birmingham but opportunity finally knocked. New hire of Market leader for Birmingham market was from Aliant Bank, a subsidiary of USAmeriBank until merged recently.
He is expected to build a lending team. He may be just the person to extract customers and managers from his old employer, Aliant Bank. No small feat to start from scratch. His background fits.
Southeast flank of Birmingham toward Hoover (Shelby County) is an excellent market. Mr. Henderson grew up in Birmingham.
The new commercial loan center in Tuscaloosa is up and running. USBI has had a branch with little deposit.
This loan office is much bigger but still don't have the critical mass in that market. Tuscaloosa is another great market. but expect fierce competitions.
SZBI's book value is north of $7.
Normally it would be a fine investment buying at 50% of book, BUT
The bank faces uncertain outcome on it TARP and other debt. Some losses of per share value looks likely.
So, is it worth the risk? I would usually say no, except that
the bank is at the cross road where it either makes a choice or a choice will be forced upon it. Either way, it'll be soon,. Soon enough that even with some sacrifice of value--dilution,etc.--that makes it worthwhile holding.
This will give BNSF a much needed presence east of the Mississippi's.
Other than CP, UNP can't make the bid due to anti-trust concerns and KCS is not financially able.
Moving was set in April '16.
From what I can gather there is not structural change, just the remodeling of interior.
Parking is limited. Employee may have to park at the old location and walk to the main office. From what I read, Mr. Sisk is all for staying in shape. (grin)
I am from the Gulf Coast.
I have looked at the 2020 N Pacific Ave location a year or so back. It's only 700 ft from the existing branch but in a good commercial area.
Difficult to add a drive-in window without major change in structure and zoning may place restriction. My guess is that it probably won't have a drive-in. It's better suited for business banking anyway.
This building is 50% larger than the existing one.
Mr. Sisk had an impressive resume if I recall, and he did well by LightHouse Bank before his departure. This time, he seems the heir apparent. As always, the future of the Bank depends on the management. I am glad Mr. Sisk is back.
Note the bank still depends heavily on interest income. It did well by assessing risk that others can't, thereby obtained higher loan yield. Mr. Hofstetter and Mr. Sisk (when he was with the bank) did an impressive job. But high loan yield is getting harder to maintain, it slided some and IMO may drift some more.
Per share book value is now $12.23 per share. Return on asset is an impressive 1.56% but with low leverage ROE was "only" 10.31%. The Silicon valley branch can easily absorb that excess capital.
4Q15 results was achieved by cost cutting. That can't repeat.
The Bank is entering an expansion phase where reported earnings will be penalized by associated expenses and demand for provision (due to expected larger loan pool). Commercial loan yield is under lots of pressure too.
Current share price seems attractive, but I expect it be burdened by the expansion that is to come.
PS There are founder's warrants which may be converted into (15%?) additional shares at $9.52(?) per share. Some dilution.