FFBW down to 5,094,000 shares outstanding. Classic case of share buybacks protecting EPS because earnings have fallen materially but so has share count. Sadly, they completed their buyback program during the quarter and did not announce a new one.
A great disappointment considering the below average profitability continues with a silly strong capital structure in place for the community bank. If you are trading 25% below TBV and have 20% TCE.. You really need to buy back stock unless you are a highflyer bank of which this is not....
I agree with everything you said. It’s possible they’re running up against the 20% repurchase limit for the 12 month period and one will still be announced soon, but the efficiency and therefore profitability are really struggling. I’m going to give management a call later in the week and will report back anything interesting.
Hey, sorry for the long delay...I think I was just returning from travel when you posted this. I did speak with Schaefer a couple months ago. He did seem to concede their were few bids out in the banking community and one would have to consider IRRs for the time when a sale might occur. I think I could also seem them acquiring something themselves again. Now my largest question is why the recent repurchase was only 2%. Not sure if they remain against an annual regulatory limit or if that's all bank regulators will sign off on now given the environment. I'll drop them a line on that as well. Cheers.
Not a problem! I appreciate the color and follow up. The stock has certainly continue to leak lower. You and I def agree this bank far to inefficient to run on its own. With Mackey and Maltese exiting in the last 12 months, Schaefer does not really have a push to help him make the best decision for shareholders.
Those are really good questions. I couldn't imagine with the capital ratios they have.. Still north of 20% that the regulator would say no mas... While I would love a loan to deposit south of 100%.. Their L/D is not too egregious..
I would love to know if are thinking about eating some of the AOCI losses so they could juice profitability.. Or do they weather the ship and hope rates come down at the intermediate to long end of yield curve (Years 5 to 30) where a great portion of assets and losses are
Any concerns about the growing L/D ratio at FFBW? Or are you just thinking with excess capital they can eat some of the losses to get the capital necessary in a pinch?
Boy the more I look at this one... You are correct this should be sold..
Yes it's certainly worth watching and I would prefer it were lower. I suspect it'll lead to 1) slower loan growth, 2) increased borrowings (which is likely to take a bite out of profitability due to higher interest expense), or a combo thereof. Recall their investment securities portfolio is AFS so it is already marked at fair value however. In a pinch, they can sell off those securities without much an impact to equity if I'm not mistaken. Cash + AFS securities cover ~25% of total deposits which seems like pretty reasonable coverage to me. That's before any other advances/liquidity measures they can take. And as you mention they also come from a position of great strength when it comes to excess capital. Let me know if I missed anything or if you see things from a different perspective. Thanks!
Hello! Thanks for all the details. I just reviewed seven of the most recent conversions and they all have underperformed. Some like SRBK, FSEA and PDLB are trading at less than there conversion price ($10). Others like FFBW, and EBC while underperforming at least trade > $10. The best performer, ERBK, trades at $17, though its performance has slightly trailed the S&P 500. What gives? Everyone makes it seem like demutualization is such a great deal. To me it looks like a stinker. Am I missing something? Is this some sort of racket?
Hi there, thanks for your comment. Generally, I would say investors are not excited about banks right now with all the speculation of a recession and the select implosions we saw from a few financial institutions in the early part of the year. Additionally, the profitability of many thrifts is impaired given they tend to lend long at fixed rates (largely real estate) and borrow at shorter rates/rely on deposits. They need to be evaluated for qualitative and quantitative characteristics as well as valuation. Finally, the S&P500 is a beast and as we all know is no small feat to beat, particularly over any shorter time frame. Long answer short, I don't think you're missing anything per se, but thrifts certainly can be lucrative.
Any interest in the LCNB & CNNB merger arb? With the current price near TBV coupled a short time-frame, the IRR could be attractive from the quick ~9.5% return with seemingly low downside
Looks like NECB will also be added to the Russell 3000 when the reconstitution occurs in a few weeks. Note that this is only a preliminary list and is subject to change in the ensuing weeks. https://content.ftserussell.com/sites/default/files/ru3000_additions_20230526.pdf
FFBW down to 5,094,000 shares outstanding. Classic case of share buybacks protecting EPS because earnings have fallen materially but so has share count. Sadly, they completed their buyback program during the quarter and did not announce a new one.
A great disappointment considering the below average profitability continues with a silly strong capital structure in place for the community bank. If you are trading 25% below TBV and have 20% TCE.. You really need to buy back stock unless you are a highflyer bank of which this is not....
I agree with everything you said. It’s possible they’re running up against the 20% repurchase limit for the 12 month period and one will still be announced soon, but the efficiency and therefore profitability are really struggling. I’m going to give management a call later in the week and will report back anything interesting.
Any luck connecting with Schaefer? Seemed like a decent number of shares have traded at the $11.30-$11.45 level in the last couple of weeks.
Hey, sorry for the long delay...I think I was just returning from travel when you posted this. I did speak with Schaefer a couple months ago. He did seem to concede their were few bids out in the banking community and one would have to consider IRRs for the time when a sale might occur. I think I could also seem them acquiring something themselves again. Now my largest question is why the recent repurchase was only 2%. Not sure if they remain against an annual regulatory limit or if that's all bank regulators will sign off on now given the environment. I'll drop them a line on that as well. Cheers.
Not a problem! I appreciate the color and follow up. The stock has certainly continue to leak lower. You and I def agree this bank far to inefficient to run on its own. With Mackey and Maltese exiting in the last 12 months, Schaefer does not really have a push to help him make the best decision for shareholders.
Those are really good questions. I couldn't imagine with the capital ratios they have.. Still north of 20% that the regulator would say no mas... While I would love a loan to deposit south of 100%.. Their L/D is not too egregious..
I would love to know if are thinking about eating some of the AOCI losses so they could juice profitability.. Or do they weather the ship and hope rates come down at the intermediate to long end of yield curve (Years 5 to 30) where a great portion of assets and losses are
Any concerns about the growing L/D ratio at FFBW? Or are you just thinking with excess capital they can eat some of the losses to get the capital necessary in a pinch?
Boy the more I look at this one... You are correct this should be sold..
Yes it's certainly worth watching and I would prefer it were lower. I suspect it'll lead to 1) slower loan growth, 2) increased borrowings (which is likely to take a bite out of profitability due to higher interest expense), or a combo thereof. Recall their investment securities portfolio is AFS so it is already marked at fair value however. In a pinch, they can sell off those securities without much an impact to equity if I'm not mistaken. Cash + AFS securities cover ~25% of total deposits which seems like pretty reasonable coverage to me. That's before any other advances/liquidity measures they can take. And as you mention they also come from a position of great strength when it comes to excess capital. Let me know if I missed anything or if you see things from a different perspective. Thanks!
Hello! Thanks for all the details. I just reviewed seven of the most recent conversions and they all have underperformed. Some like SRBK, FSEA and PDLB are trading at less than there conversion price ($10). Others like FFBW, and EBC while underperforming at least trade > $10. The best performer, ERBK, trades at $17, though its performance has slightly trailed the S&P 500. What gives? Everyone makes it seem like demutualization is such a great deal. To me it looks like a stinker. Am I missing something? Is this some sort of racket?
Hi there, thanks for your comment. Generally, I would say investors are not excited about banks right now with all the speculation of a recession and the select implosions we saw from a few financial institutions in the early part of the year. Additionally, the profitability of many thrifts is impaired given they tend to lend long at fixed rates (largely real estate) and borrow at shorter rates/rely on deposits. They need to be evaluated for qualitative and quantitative characteristics as well as valuation. Finally, the S&P500 is a beast and as we all know is no small feat to beat, particularly over any shorter time frame. Long answer short, I don't think you're missing anything per se, but thrifts certainly can be lucrative.
Any interest in the LCNB & CNNB merger arb? With the current price near TBV coupled a short time-frame, the IRR could be attractive from the quick ~9.5% return with seemingly low downside