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  • 3 Stocks With Recent Intensive Insider Buying  [View article]
    Mr. Marcus,

    I appreciate your effort, but your inclusion of CFIS is a mistake.

    By all count CFIS was broke. The bank without TARP had a negative equity. Generally it's good news that the bank can recapitalize. The problem here is the two tiered fund raising.

    In the end, the preferred would gain on common shareholders.

    For example, Amberly Holding.Per 13-G filed 12-21-2012:
    ""The Reporting Person may be deemed to beneficially own 946,536 shares of Common Stock. This amount consists of 4,329 shares of Common Stock, 874,800 shares of Common Stock issuable upon the conversion of Series C Preferred Stock held by the Reporting Person and 67,407 shares of Common Stock issuable upon the conversion of Series E Preferred Stock. The 946,536 reported shares of Common Stock excludes 257,793 shares of Common Stock issuable upon the conversion of Series E Preferred Stock held by the Reporting Person because the Series E Preferred Stock provides that a holder thereof does not have the right to convert the Series E Preferred Stock into Series C Preferred Stock to the extent that such conversion would result in the holder, together with affiliates, owning or controlling in the aggregate more than a 4.99% voting"

    Now if only one can buy into the preferred.

    Feb 23, 2013. 12:33 PM | Likes Like |Link to Comment
  • Parke Bancorp: A Chronically Undervalued Financial Stock  [View article]

    Texas ratio or troubled asset ratio, the ratio between the sum of OREO(repossessed asset) and NAL against the sum of bank level equity and allowance for losses, has persistently increased for four years. It was at 71.1% by 3Q12 while nationwide average was trending down at 11.4%.

    To give a sense of the severity, average Texas Ratio nationwide "peaked" at 15.1% two years ago. And Parke is now 4.7 times as burdened by bad assets comparing to that peak and 6.2 times the current average.
    In this case, a judgment of whether Texas ratio would continue to increase and assessment of future credit related cost are critical. Also important is whether the bank can earn enough to meet the impending credit related cost and losses.

    Much is on the balance. If the bank can make it through this, with its superior earning power we may have long term winner. On the other hand, if it fails to earn enough to cover the credit related cost/loss...We haven't start to talk about the $16.88 million TARP yet.

    It made it this far and credit may turn down shortly, that's my reasoning. It doesn't take much to tip the balance, however. Sandy can be one.
    Jan 23, 2013. 08:44 AM | Likes Like |Link to Comment
  • Parke Bancorp: A Chronically Undervalued Financial Stock  [View article]
    SBBX has a nice insurance operation which is more stable than PKBK's SBA lending but is also less profitable.
    Common to PKBK is its high troubled asset, but that is going to pass.
    In the longer run, the major difference is that pretax, pre-credit operating income at SBBX is 1.6% on asset. That ratio is around 2.5% at PKBK.
    The other differnce is one of leverage. SBBX is safer but also offer less upside.
    Jan 21, 2013. 11:28 PM | Likes Like |Link to Comment
  • Parke Bancorp: A Chronically Undervalued Financial Stock  [View article]
    Excellent overview. Thank you, Scepticist.

    I might add that the bank was loaded with troubled asset when real estate market cracked. What saved the bank was that it took TARP, AND that it plunged right in when, in the wake of financial turmoil, SBA 7(a) program expanded government guaranty portion from 75% to 90%. That wind fall ended in 2010, but Parke got to earn exceptional returns during those two years, enough to cover credit related losses/cost, and then some.

    SBA loan is no longer so profitable, but remains an important driver for profit. This business is not restricted by geography but competition is now heating up.

    As the author, Scepticist, correctly pointed out, the bank was very efficient. Around 50 cents of every dollar drops to pretax row, far higher than peer banks.

    TARP preferred was sold to investors recently. This opens up for management to get a raise. Maybe long overdue, but pay raise will come from pretax income.

    TARP warrant has the effect of 6.8% dilution. Conversion price is near $7. Dilution doesn't seem matter at this time, but once the share price rise above $7 the upside would be dampened somewhat.

    I am all for share buy back. But with consent order in effect, Parke can't do any thing that weakens capital. It had to work off the credit before it can raise capital to pay off TARP, buy back warrants, then buy back shares, in that order.

    Super storm Sandy may have caused some disruption in the near term, but I surmise it's net positive in the long run.

    Less tangible is that the management was both perceptive and quick to adapt. Once the dust settled on credit side, I won't be surprised to see it operating opportunistically again.

    A warning. Lending had been concentrated on construction & development before and may return to that again. For that reason, Parke will carry a higher than average risk operation wise.

    With TARP, credit, and consent order hanging over the bank, it's up to each investor to decide if the risk is worth it. I, for one, agree with the author that it's worth the risk, especially at 50% off.
    Jan 21, 2013. 11:09 PM | Likes Like |Link to Comment
  • Carolina Bank Holdings: An Undervalued, High Earnings Growth Bank  [View article]
    Dear Daniel,

    We may never be perfect, but it never stopped us from trying.
    Joint the world of amateur investors!

    While I appreciate your efforts, there are things amiss in your analysis.

    Tangible book value is around $31 million. Because CLBH --the Bancorp--received $16 million TARP and also issued $9.3 million trust preferred, it gets to fund the subsidiary bank--the bank-- to adequate capital ratio. It did not put all TARP fund into the bank but over the past few years, the remainders are mostly used up paying out dividends on both preferred. (It did not pay out dividends this year. Maybe allowed by the regulators to do so after showing consistent earnings.)

    By knowing that TARP needs be paid back in about 5 quarters and there is no likelihood that the Bancorp is able to repay the entire $16 million with retained earnings, some adjustment needs to made to reflect the diluted base. This can range from 1 million to 2.5 million additional shares depending on assumptions one chose.

    The bank is doing very well. More detailed analysis may be in order.
    Prior to 2007, it did not put much effort in gatherings deposit and funding cost was very high. It made much progress in this regard and funding cost is almost at par to peer banks.
    Lending was very aggressive five years ago, the result of which was huge charge offs. Its portfolio of riskier loans came down dramatically. The past few quarters 30-89day past dues was at around $1 million indicating far fewer inflow of bad loans. Allowance for loan & lease losses seems a bit low relative to the size of non-accrual loans, but I am not expecting big surprise (large provisions).
    Worth mentioning is that Bancorp took TARP fund to expand instead holding back as most other banks did. This expanded base allowed it to earn higher interest income.
    On top of that, it also engaged in mortgage banking and expand rapidly in the past two years. Since these mortgage loans were resold almost immediately, it tied up little capital. The gains thus generated boosted the non-interest income substantially.
    (One needs to be mindful of--and discount for--the volatility of this source of income as it's tied largely to interest rate movements. As interest rate quit dropping, mortgage income will fall back.)

    All the above is not meant to be complete, but mere adds to the understanding of the Bancorp.

    Regards, and best wishes.

    Sam, a shareholder.
    Sep 21, 2012. 11:58 AM | Likes Like |Link to Comment
  • It's Not Citi, But City Bank Not Pretty Either  [View article]
    Thank you for the update, Mr. Plaehn.

    On the last item of your highlight, my understanding is that the percentage took in both the non-performing assets as well as assets foreclosed (asset owned)--roughly $100 million vs $1,250 million in asset, or 8%.

    True, by your projected earnings, the shares are cheap. With business in distress, the central theme may have shifted to whether non-performing loan would continue to eat into capital. CTBK is trading at roughly 75% of its book value. There is no justification unless we can envision that the business would be seriously impaired or that it'll lose some money during this down turn. On the later, I am not all that confident. The NPL+asset owned was less than 1.0% at year end, 4.5% at March quarter and now at 8%. The trajectory suggests that more are to come. Recovery rate can be as low as 60% on uncompleted projects or land. I feel the reserve (1.5%) may not be adequate to cover the 8% reported dead money.

    So, I think the market may be right in assigning a value below book. However, I don't see the company go under unless the Puget Sound area RE market experience long and deep decline. 17% in tier-1 capital probably would make it the last bank standing.

    I am interested in purchasing additional shares. I'd be interested to hear what you think.

    Regards, Sam
    Jul 20, 2008. 09:32 AM | Likes Like |Link to Comment
  • The Long Case for City Bank  [View article]
    Very good summary, Tim.

    You have provided an excellent snap shot of the bank.
    Just wonder how the bank were able to charge more for the loans and maintained double-the-industry interest rate spread, and for so long. One possibility is the concentration in project loans. maybe? If so, the risk maybe much higher during this down turn.

    The bank maintained exceptional financial leverage. Even with higher risk per loan value, I'd guess that the equity would not erode nearly as much as average banks. For its existence to be threatened, most banks would be wiped out already, a scenario I do not envision.

    The efficiency ration being about 25%--about half of that of industry--is direct result of of that fat interest rate spread. While that is great, it doesn't add to how defensive this business is.
    We all knows far less about the Seattle market. While employment has held up really well, export market too, just don't know how it'll affect the portfolio of loans. That jumped about 2.5% on total loan outstanding in just the past quarter, even without general weakness of the local economy. What if it does weaken? There seems to be more unpleasant news ahead.

    That said, I am a shareholder. What do I know?

    Best, Sam
    May 29, 2008. 12:03 PM | Likes Like |Link to Comment