Alex_G

Buy Opportunities Like These Do Not Come Along Very Often

Tjohn, Boney,

The market last week finally woke up to the issue of builder loans outside of vegas, FL, AZ and central CA. yes, i still have small legacy positions in a few of these stocks, but for the most part got out when they were 150% of historical metrics.

Here's my problem with buying CTBK now: 75% land and construction loan exposure scares the living shit out of me. I would rather buy it at $15, knowing the worst is behind them, than buy them under $10 while they are still falling, not knowing what is coming up in builder loan losses.

And the problem with builder loans is the same everywhere in the country: Builder borrows to buy land or lots w/ 35% down, LTV of 65%. At 35% ormore lot value drop, builder is at 0 or negative equity. Banks now will not loan the rest to finish project, so builder has to carry out of cashflow or sell. Builder needs to build to have cashflow. Other builders can't get financing to buy the land. You get the picture. This is what has been happening so far in 2008 in the first parts of the country to have the real estate bubble burst. We are late here, but it is coming, at least to some degree, to what at this point we don't know.

So, when would i buy? I will re-enter these stocks when they reach option price or i feel that builders can get loans again to finish the projects they started.

The 3 i will look at the hardest are FTBK, CACB and CTBK.

Buy Opportunities Like These Do Not Come Along Very Often

Remington,

You just don't get the metrics, do you? And you clearly don't live here, and you don't understand small banks. You know that the bank is not in Seattle, right?

Buy Opportunities Like These Do Not Come Along Very Often

My friend, an analyst who covered the stock, agrees w/ me.

If you look at the small banks that are down 75-90%, they all have one thing in common: Builder exposure over 50%. How's that for a useless statistic?

I am not saying they will fold, far from it, but the risks are very high in the sector, and the more builder exposure you have, the greater the risk.

I am not short the stock, and have been long since it was a pink sheet stock.

Many small banks will fail due to exposure to the construction industry, the first being in the Vegas, Scottsdale and Inland Ca areas. Washington will lose a couple as well.

Buy Opportunities Like These Do Not Come Along Very Often

Remington,

75% of their loan book is construction and land, w/ 65% of that number being 1-4 family. Very high #s. Their primary market is the suburbs and x-urbs of seattle, which are now seeing price drops anywhere from 10-30%, depending on how far away from the city you are. Most of the nation's real estate markets peaked mid to late '06, while our market peaked late summer '07, almost a year later. There will be write-offs, probably by the 4th Q. This downturn will be much more powerful than the one we experienced in 1990. I know for a fact that some x-urbs are seeing lot prices discounted as much as 50% from the peak.

I do know the profile of their borrowers, a couple are friends of mine. They are leveraged builders. The commercial part of their loan book should be firm, as that market has not seem much price deflation yet and vacancies are low here.

As far as Goldman's call goes, i really don't think they were talking about small local banks leveraged to the construction industry.

Buy Opportunities Like These Do Not Come Along Very Often

Remington,

Not talking about commercial. Pull their Call Report. They have substantial exposure to raw land via single family home builders.

They are known as conservative lenders and have always been over capitalized, so I don't think dilution will happen. Long term, they will be a great buy, but small banks tend to move in a pack, so adjust your time horizon out to at least 18-24 months.

Buy Opportunities Like These Do Not Come Along Very Often

Tim,

I live in CTBK's area and have been following them for many years. They have substantial exposure to builders and raw land, which has, in some cases, decreased by 50%.