US Regional bank stocks - PNC Financial, TFS - Truist, USB- USB Bank, MTB - M&T Bank etc

[sleepydragon]

23 hours ago, schin said:

 

I would love the counterargument or an example of a good regional to invest in that is undervalued like Citigroup or even an international global bank like Deutsche Bank, Barclays, Unicredit, BNParabis, Commerzbank, ABN Amro.  (I just listed 6 banks that priced below book and with stronger CET1 ratios) 

 

Just feel the dynamics the large money center bank is easier... There is definitely finish in the smaller pond of regional banks.... but, I think it's easier now for the larger banks.

have you looked at BANC of California?

it’s trading below tbv and 7x management guided pe. I think the stock hasn’t moved much yet because even the management is not sure what the future earning is going to stabilize at yet (they just closed the deal with PACW), and of course they are very small . 
 

anyone has options about it? 

[Spekulatius]

If someone is interested in a very well run smaller bank - FMCB may fit the bill. They are Farmers and Merchants Banks in Lodi and specialize in agricultural loans. ROA and ROE are very healthy.

Even during the GFC, they did not have much issues with credit quality and they are always running well capitalized. The stock used to be quite expensive relative to other banks, but it’s not relatively cheap and they also started to buy back shares, which to my attention. Trades on OTC and is insider controlled.

https://www.otcmarkets.com/stock/FMCB/news

 

I bought shares around current prices and added a few today.

Edited March 4, 2024 by Spekulatius

[Spekulatius]

FMCB doing alright even though the EPS growth mostly came from  buybacks:

https://www.fmbonline.com/_/kcms-doc/171/91360/MSR10662_Q1_2025EarningsIncrease_PressRelease.pdf
 

Too cheap imo, because index funds can’t own it.

Edited May 18, 2025 by Spekulatius

[Marco Van Basten]

1 hour ago, Spekulatius said:

FMCB doing alright even though the EPS growth mostly came from  buybacks:

https://www.fmbonline.com/_/kcms-doc/171/91360/MSR10662_Q1_2025EarningsIncrease_PressRelease.pdf
 

Too cheap imo, because index funds can’t own it.

I agree that it is very well run, 1.6% ROA is proof and efficiency ratio is excellent.  However isn't capital allocation horrible?  (They did do a big buy-back in 2024, I will grant you that.)  Why is the stock only up 5x in 25 years?  Unless I mucked something up, it is roughly 6.6% price + 1.9% dividend, just and 8.5% annual return.  Also, there is hardly any growth?  What I am missing?  What attracts you and why?  Thank you.

[Spekulatius]

1 hour ago, Marco Van Basten said:

I agree that it is very well run, 1.6% ROA is proof and efficiency ratio is excellent.  However isn't capital allocation horrible?  (They did do a big buy-back in 2024, I will grant you that.)  Why is the stock only up 5x in 25 years?  Unless I mucked something up, it is roughly 6.6% price + 1.9% dividend, just and 8.5% annual return.  Also, there is hardly any growth?  What I am missing?  What attracts you and why?  Thank you.

The multiple has come down such that buybacks are accretive . This used to be a richly valued bank, not any more.

 

FWIW, they bought back the stock from an estate, below market price.

[Marco Van Basten]

1 hour ago, Spekulatius said:

The multiple has come down such that buybacks are accretive . This used to be a richly valued bank, not any more.

 

FWIW, they bought back the stock from an estate, below market price.

Thank you.  Do you know what their plans are regarding the capital that they are generating?  Are they going to be buying back stock in the future, or are they committed to growing the business, and where will the growth come from?  Thank you.  

[Spekulatius]

On 5/18/2025 at 8:06 PM, Marco Van Basten said:

Thank you.  Do you know what their plans are regarding the capital that they are generating?  Are they going to be buying back stock in the future, or are they committed to growing the business, and where will the growth come from?  Thank you.  

I don’t know more than what they are saying. They have ~$20M left on the Buick authorization so I assume they want o use it for buybacks. My guess is the plan is to buy them back directly from share holders seeking for an exit, since open market purchases with the limited liquidity would be difficult and drive up share prices.

 

FMCB isn’t really buy back shares in quantity until recently so my guess is that they regard the shares as cheap.

[Dalal.Holdings]

The bank weathered 2008 well, but one thing I’m looking at is interest rate risk.

 

Looks like they significantly increased MBS of > 10 year duration in their AFS securities portfolio. Also they have a lot of CRE loans.

 

Their asset side seems duration heavy (though they do have a lot of cash & equiv on hand)

[Rainier]

4 hours ago, Dalal.Holdings said:

The bank weathered 2008 well, but one thing I’m looking at is interest rate risk.

 

Looks like they significantly increased MBS of > 10 year duration in their AFS securities portfolio. Also they have a lot of CRE loans.

 

Their asset side seems duration heavy (though they do have a lot of cash & equiv on hand)

The CRE loans may end up being a decent safe haven over the next couple of years for well run banks. The regulators are fully entrenched with extend and pretend on CRE and have been for a while, so a bank is going to have to be in really bad shape regarding CRE for it to bubble up from the regulatory side of things.  But when they run into widespread credit issues, they’ve still got to put up reserves where necessary, bog down lenders or workout groups (i.e, higher non-interest expense), and find other avenues of lending if the regulators discourage CRE growth. And no matter what a bank says, if they are pursuing new growth in excess of a small multiple of regional GDP growth, that means they are increasing their risk profile.

 

There are different risk spectrums for these regional banks in terms of CRE exposure. Some are very conservative, with portfolios that basically pose no credit risk at all. This sounds far fetched, but there is a segment of this segment that foregoes some amount of growth during the hot periods. As an example, investment grade multifamily construction has two main tiers of financing from regionals.

 

The first group of banks typically have the AAA lenders in the market who are viewed more or less as a partner in the deal process (along with equity, developer, and legal teams). They do nothing but multi family construction and know as much about submarkets, GC’s, zoning, etc as the developer does. Pre-pandemic, this group commanded 65% LTC (not LTV) and some level of recourse. Today, this group commands 45-55% LTC. There is also a feeder system for risk diversification, as all of these AAA lenders know each other and they know which conservatively run smaller banks to make up bank groups to buy syndications or participations. So, you’ll also find a few smaller banks punching way above their weight in terms of CRE asset quality because of this. This group only deals with the top level of developers, which are sometimes public or near public, but often they are basically extensions of very well-capitalized family offices. So, they’re often very patient, methodical, friendly capital. Not that anyone desires to walk away from 50-55% equity, but this type of equity is extremely reticent. Loans virtually never default, as the patient capital will write checks or pledge cash to make banks comfortable.

 

The second group of banks is somewhere higher on the risk spectrum. Obviously riskiness varies with each loan, but let’s say that pre-pandemic this group was commanding 80% LTV (not LTC, so you might have less than 20% cash equity in a deal compared to the guaranteed 35%+ in equity in the case of the first group of banks). Currently, lets say they average 75% LTV. There’s lots of other ways in which this group is inferior (from a risk standpoint), but just let the delta in equity serve as a proxy for the delta in every other risk category (banker expertise, recourse, developer experience, submarket quality, equity reliability, etc). 
 

It’s a unique situation in which the less risky borrower profile also comes with a less risky project/equity profile. This might seem counterintuitive, but when you factor in the concept that the best groups of developers and equity are most likely those who’ve made it through several cycles, it becomes more obvious why all parties (AAA banker, AAA developer, AAA equity) are all aligned with the idea of ample cash equity and conservative projections. 
 

Long story short (sorry for rambling)…my point is that these are two very different scenarios (first bank example vs the second example). However, the duration on the two loans will be virtually the same. It will be something like a 3-year construction loan, with 1-2 years of mini-perm. And probably a couple of years of extension options. So, 5-7 years. That is almost universal, no matter how much credit risk is layered on the loan or what the interest margin is.

 

You can extrapolate this across virtually all CRE asset types (construction or term), with different nuances for each. And as you get to office, retail, industrial, hotel (none of which have Fannie money as an exit strategy, which keeps bank-funded multifamily durations lower than other CRE asset classes), you tend to see durations pushed out longer for higher quality loan assets.
 

That doesn’t alleviate duration issues or interest rate risk. And I know the banks don’t get to enjoy the equity upside of a highly successful project. But I do like to counterbalance the interest rate risk concerns with what might get glossed over in terms of the credit profile.

 

The overarching concern with banks the last three years has been interest rate risk. But I think we are likely to see that shift in the next couple of years back to credit risk. There’s a lot of nastiness in some of these CRE portfolios plus there was a frenzy for commercial loans post pandemic, since those loans bring low rate deposits (and growth > GDP only comes with increased risk). Plus “private credit” has proliferated across the regionals. In other words, credit standards have taken somewhat of a backseat and have likely eroded somewhat. 

[Hektor]

@Rainier Thanks for the post, and drawing attention to the credit risk that might be masked by the present focus on interest rate risk.

[Dalal.Holdings]

Long dated Treasuries are now breaking out...if that continues, what does that do to the unrealized losses on long duration assets sitting on bank balance sheets ? 

 

Does interest rate risk come back in vogue like a few years ago ?

[Hektor]

22 minutes ago, Dalal.Holdings said:

Long dated Treasuries are now breaking out...if that continues, what does that do to the unrealized losses on long duration assets sitting on bank balance sheets ? 

 

Does interest rate risk come back in vogue like a few years ago ?

+1. It will be interesting to watch the banks and the insurance companies.

[Dalal.Holdings]

16 hours ago, Rainier said:

The CRE loans may end up being a decent safe haven over the next couple of years for well run banks. The regulators are fully entrenched with extend and pretend on CRE and have been for a while, so a bank is going to have to be in really bad shape regarding CRE for it to bubble up from the regulatory side of things.  But when they run into widespread credit issues, they’ve still got to put up reserves where necessary, bog down lenders or workout groups (i.e, higher non-interest expense), and find other avenues of lending if the regulators discourage CRE growth. And no matter what a bank says, if they are pursuing new growth in excess of a small multiple of regional GDP growth, that means they are increasing their risk profile.

 

There are different risk spectrums for these regional banks in terms of CRE exposure. Some are very conservative, with portfolios that basically pose no credit risk at all. This sounds far fetched, but there is a segment of this segment that foregoes some amount of growth during the hot periods. As an example, investment grade multifamily construction has two main tiers of financing from regionals.

 

The first group of banks typically have the AAA lenders in the market who are viewed more or less as a partner in the deal process (along with equity, developer, and legal teams). They do nothing but multi family construction and know as much about submarkets, GC’s, zoning, etc as the developer does. Pre-pandemic, this group commanded 65% LTC (not LTV) and some level of recourse. Today, this group commands 45-55% LTC. There is also a feeder system for risk diversification, as all of these AAA lenders know each other and they know which conservatively run smaller banks to make up bank groups to buy syndications or participations. So, you’ll also find a few smaller banks punching way above their weight in terms of CRE asset quality because of this. This group only deals with the top level of developers, which are sometimes public or near public, but often they are basically extensions of very well-capitalized family offices. So, they’re often very patient, methodical, friendly capital. Not that anyone desires to walk away from 50-55% equity, but this type of equity is extremely reticent. Loans virtually never default, as the patient capital will write checks or pledge cash to make banks comfortable.

 

The second group of banks is somewhere higher on the risk spectrum. Obviously riskiness varies with each loan, but let’s say that pre-pandemic this group was commanding 80% LTV (not LTC, so you might have less than 20% cash equity in a deal compared to the guaranteed 35%+ in equity in the case of the first group of banks). Currently, lets say they average 75% LTV. There’s lots of other ways in which this group is inferior (from a risk standpoint), but just let the delta in equity serve as a proxy for the delta in every other risk category (banker expertise, recourse, developer experience, submarket quality, equity reliability, etc). 
 

It’s a unique situation in which the less risky borrower profile also comes with a less risky project/equity profile. This might seem counterintuitive, but when you factor in the concept that the best groups of developers and equity are most likely those who’ve made it through several cycles, it becomes more obvious why all parties (AAA banker, AAA developer, AAA equity) are all aligned with the idea of ample cash equity and conservative projections. 
 

Long story short (sorry for rambling)…my point is that these are two very different scenarios (first bank example vs the second example). However, the duration on the two loans will be virtually the same. It will be something like a 3-year construction loan, with 1-2 years of mini-perm. And probably a couple of years of extension options. So, 5-7 years. That is almost universal, no matter how much credit risk is layered on the loan or what the interest margin is.

 

You can extrapolate this across virtually all CRE asset types (construction or term), with different nuances for each. And as you get to office, retail, industrial, hotel (none of which have Fannie money as an exit strategy, which keeps bank-funded multifamily durations lower than other CRE asset classes), you tend to see durations pushed out longer for higher quality loan assets.
 

That doesn’t alleviate duration issues or interest rate risk. And I know the banks don’t get to enjoy the equity upside of a highly successful project. But I do like to counterbalance the interest rate risk concerns with what might get glossed over in terms of the credit profile.

 

The overarching concern with banks the last three years has been interest rate risk. But I think we are likely to see that shift in the next couple of years back to credit risk. There’s a lot of nastiness in some of these CRE portfolios plus there was a frenzy for commercial loans post pandemic, since those loans bring low rate deposits (and growth > GDP only comes with increased risk). Plus “private credit” has proliferated across the regionals. In other words, credit standards have taken somewhat of a backseat and have likely eroded somewhat. 

 

I'd imaging FMCB has some specialized knowledge in San Joaquin county given its strong presence & history there. It seems to be a solid bank, but my main concern is on the duration of the assets: especially the securities portfolio (AFS + HTM are largely long duration >10 yr MBS).

 

The loans are mostly CRE (I'd guess based in San Joaquin though haven't looked deeper) followed by ~28% agricultural loans. About half the loans are due within 5 years which is good. And they have a large pile of cash as well which is reassuring.

 

If you add up all the loans due < 5 yrs and the cash, it's actually not bad from a duration point of view (the securities are longer duration than the loans).

 

The CRE book is one area to explore though

 

Perhaps one other risk to consider is some kind of climate event that impacts farmers in the San Joaquin region, but that's more black swanish.

 

Edited May 21, 2025 by Dalal.Holdings

[Spekulatius]

FMCB will be fine. they had ~120M in unrealized losses in HTM and the AFS unrealized losses are accounted for. they how a strong deposit base.

I would worry more for the likes of BofA. They had ~$108B in HTM losses by YE 2024.

 

 

[Dalal.Holdings]

@Spekulatius What do you think of the stock award plan recently put in place from the 10-Q:

 

Quote

Restricted Stock Award Plan

At the special meeting of shareholders held on November 25, 2024, the Company’s shareholders approved the Farmers & Merchants Bancorp 2025 Restricted Stock Retirement Plan (the “2025 Plan”). The 2025 Plan provides for the issuance of up to 80,000 shares to directors and employees of the Company and its subsidiaries and affiliates. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. Due to the illiquidity of the stock, the fair value of the stock was determined using a volume weighted average price over a 30-day period as of the grant date, which equaled $1,033.03 per share. The first awards were granted on February 3, 2025 and totaled 30,818 shares. The awards contain a service condition, which requires the employees to provide services during the applicable vesting periods. The awards were comprised of a one-year award for directors and two-year, three-year and four-year awards for employees depending on their roles and responsibilities. The awards vest on a pro-rated basis over the life of the award. Total remaining shares issuable under the 2025 Plan were 49,182 at March 31, 2025. The unvested restricted shares have voting rights and dividend rights; however, the dividends are paid to the holder only if, when and to the extent such unvested restricted shares vest. Dividends on forfeited restricted stock are also forfeited.

 

Proxy:

Quote

Grants of Awards Under the 2025 Plan

 

On February 3, 2025, after the end of the 2024 fiscal year, each of our Named Executive Officers were granted restricted stock awards (“RSAs”) under the 2025 Plan. The RSAs that were granted are subject to one of the following two vesting schedules: (i) ratable vesting over the two-year period following the applicable vesting commencement date; or (ii) ratable vesting over the three-year period following the applicable vesting commencement date. The other terms and conditions, in addition to the applicable vesting schedule and vesting commencement date, of the RSAs are as set forth in the notice of restricted stock award and restricted stock award agreement entered into by and between the Company and each Named Executive Officer, which are substantially in the form of the notice of restricted stock award and restricted stock award agreement that was previously approved by our Board and filed with the SEC as Exhibit 10.1 to the Form 8-K dated January 14, 2025. Since the grants of the RSAs were based on 2024 compensation determinations but granted in 2025, they are not reported in the “Summary Compensation Table” or the “Grants of Plan-Based Awards Table” for 2024.

 

80,000 shares (more than 10% of Shares OS) is $80M worth that vests over 1-4 years it sounds like and negates multiple years worth of buybacks. Stock based comp in Q1 was recorded as $2M and I see no SBC prior to this year in recent years so this stock issuance is a new thing they are doing it seems

 

30,818 restricted shares were granted just in Q1:

 

 

The board does own a lot of stock which is nice but they also seem pretty richly compensated (even before the new 2025 Plan):

 

 

 

Edited May 21, 2025 by Dalal.Holdings

[Lollapalooza]

Any thoughts on this?

Seems quite bullish for community / regional banks

[dcollon]

It's starting to get fun again 

[Rainier]

Agreed. I bought a small basket of regional and community banks back in August and sold them all at the beginning of October for about a 15% gain. I’m dipping back in again. Probably some more fallout to come though. These C&I focused banks can never remember how much pain note financing can cause.

 

Small positions so far: WABC, MCBS, FSBW, HBT, PNFP, BHRB, EWBC, FCNCA

 

Also watching closely: SBSI, MBIN, PB, NECB, PLBC, LCNB, MBIN, COLB, GBCI, GSBC, WTBA, OPBK.

[Spekulatius]

What caused today’s decline for the banks? Lower interest rates? I read the news but I still don’t have a good idea.

.

Edited October 16, 2025 by Spekulatius

[Rainier]

I think it was Zions taking a $50 million charge off on what sounds like a loan providing some type of note financing. Could be Tricolor.

[lnofeisone]

9 hours ago, Spekulatius said:

What caused today’s decline for the banks? Lower interest rates? I read the news but I still don’t have a good idea.

.

banks tapping repo at highest rates since covid. mostly regionals. 

[Hektor]

13 hours ago, Spekulatius said:

What caused today’s decline for the banks? Lower interest rates? I read the news but I still don’t have a good idea.

.

Looks like Jamie Dimon’s “cockroach” comment is leading to banks checking their books, and some are finding more roaches.

[John Hjorth]

20 hours ago, Spekulatius said:

What caused today’s decline for the banks? Lower interest rates? I read the news but I still don’t have a good idea.

 

20 hours ago, Rainier said:

I think it was Zions taking a $50 million charge off on what sounds like a loan providing some type of note financing. Could be Tricolor.

 

 

Yeah, @Spekulatius & @Rainier,

 

Archive Today : Financial Times - US Banks [October 16^th 2025] : US regional bank shares sink on credit worries after fraud disclosures

 

Subtitle : Western Alliance and Zions Bank disclose exposure to alleged fraud.

 

- - - o 0 o - - -

 

It's spreading like a fire in Sequoia Land all over the place, even all Northern European banks that I own posisitions in are affected today by this.

 

And then you have both Marc Rowan and Jamie Dimon [I 've dubbed him 'stumpy' when I feel annoyed by him - I personally still think the height of the JPM fallos symbol at 270 Park Avenue, NY, is Mr. Dimon overcompensating for lack of his own height [  ]] yelling 'the wolf is coming', and talk about cockroaches. 

Edited October 17, 2025 by John Hjorth

[dealraker]

14 hours ago, John Hjorth said:

 

 

 

Yeah, @Spekulatius & @Rainier,

 

Archive Today : Financial Times - US Banks [October 16^th 2025] : US regional bank shares sink on credit worries after fraud disclosures

 

Subtitle : Western Alliance and Zions Bank disclose exposure to alleged fraud.

 

- - - o 0 o - - -

 

It's spreading like a fire in Sequoia Land all over the place, even all Northern European banks that I own posisitions in are affected today by this.

 

And then you have both Marc Rowan and Jamie Dimon [I 've dubbed him 'stumpy' when I feel annoyed by him - I personally still think the height of the JPM fallos symbol at 270 Park Avenue, NY, is Mr. Dimon overcompensating for lack of his own height [  ]] yelling 'the wolf is coming', and talk about cockroaches. 

It's the listed height...minus at least an inch (on most VIP's).  So 5' 10" is probably 5' 8 1/2".

Edited October 18, 2025 by dealraker

[Spekulatius]

$FMCB keeps chugging along. Tangible book up to $929 now. They also reduced share count by ~2% YoY. EPS up ~7%.

https://www.otcmarkets.com/stock/FMCB/news/Farmers--Merchants-Bancorp-FMCB-Reports-Record-Quarter?id=518042

Edited April 26 by Spekulatius