ECIP plays - CZBS, MFBP, PCB, CZBS, UBAB, BFCC

[formthirteen]

Starting a thread on Emergency Capital Investment Program (ECIP) plays. Better late than never, a year ago would have been a better time to start one. Thesis: the banks were given a lot of funds via the ECIP program and preferred stock investments by Money Center Banks:

 

Source: https://www.eriksencapitalmgmt.com/investor-letters

 

Ideas: CZBS (Citizens Trust Bank), MFBP, PCB, UBAB, BFCC, etc. Most of them are microcap banks.

 

Call reports are available at:

https://cdr.ffiec.gov/public/ManageFacsimiles.aspx

 

 

Edited May 2, 2023 by formthirteen

[Gamecock-YT]

Funny story on those investments by money center banks: The financial institution I worked at during the time these investments were being done made an investment in a bank not realizing that it traded OTC, so instead of holding the investment at cost like the rest of the banks that were privately held, this one should have been marked to market. The price the purchase was done at compared to what it was trading over the counter would have resulted in an immediate ~15% loss on the investment. Needless to say the decision was made by the higher ups not to mark the investment at market. 

[gfp]

I guess if we are talking about these banks on this forum now, we should link to a few articles

https://drive.google.com/file/d/1-Y8eEOMa6gVScvqQ-E86IqagHdo5UIUM/view

 

https://drive.google.com/file/d/12pcz5FR4chXArz28rGYkqmqeV8Ra9T8S/view

 

From

https://twitter.com/dirtcheapstocks

 

I believe Solitron Devices made an investment in CZBS and MFBP

 

Alluvial Fund has a little basket of these also.  Maybe BFCC, UBAB, CBOBA - I forget if they are disclosed or not

 

 

[KJP]

1 hour ago, gfp said:

I guess if we are talking about these banks on this forum now, we should link to a few articles

https://drive.google.com/file/d/1-Y8eEOMa6gVScvqQ-E86IqagHdo5UIUM/view

 

 

 

I made a similar "adjusted book value" calculation as the author to account for the highly company-friendly terms of the preferred.  But what p/b is this bank worth?  The Bank's historic performance was not great, and it's currently getting the benefit of high short-term rates on all of its excess cash.  As short-term rates come down, they're going to have to put that money to work elsewhere.  Do they have the track record to suggest they can put that much additional capital to work wisely? 

 

The annual report suggests their home markets have insufficient demand:  "Pursuing Growth: We have expanded our market area to include a commercial lending presence in North Atlanta, GA and Nashville, TN with a strategy to expand to other markets within Tennessee, Texas and North Carolina by 2025."  I question whether it's a wise idea to rapidly expand commercial lending into new geographies in which the Bank has no relationship or experience.  What kind of borrowers is it going to attract in these new locations?

 

So, the bank is very cheap on an asset basis, but I'm less sanguine on its ability to have a much larger quality loan book in place by, say, 2025 or 2026.

 

In his latest letter, @Tim Eriksen noted that CZBS appears to have bought back almost 5% of shares outstanding in April:  https://static1.squarespace.com/static/5ea6570a0ba57d406203e048/t/644872509e61401b01f36b78/1682469456611/Q1+2023+Results+for+Cedar+Creek+Partners.pdf

 

In my view, that's a smart use of capital in light of the current stock price and the potential difficulties in finding good loans for all of the capital they have.

Edited May 2, 2023 by KJP

[gfp]

I would like to see more consolidation between and among these ECIP (and MDI) recipient banks.  BFCC has started with a couple.  They shouldn't be bought by or be buying banks that didn't benefit from these programs.  Hopefully the better managements would survive the consolidations.

[Spekulatius]

I do wonder what happens if you give lousy management a lot of capital to play with.

Some credit unions got money too - like Workers Federal CU close by (for me) in Littleton MA got $150M . Main branch is 1.5* star rated. it's a crummy organization from what I can tell with generally uncompetitive terms, no they can become a crummy organization twice their current size. They are not operating in a distressed area either, god knows how they got the funding.

https://home.treasury.gov/system/files/136/Applicants-Approved-for-ECIP-Investment.pdf

[gfp]

I don't know where to post this but it is always interesting to read Tim Eriksen's quarterly letters at Cedar Creek.  I am posting it here even though it isn't primarily discussing ECIP recipient banks, because there is a lot of overlap in the folks that would find both interesting.  (and there is some ECIP content).  Tim used to post on this board occasionally and is active in Expert Market microcaps that most brokers don't offer.  Kind of a cool throwback to the types of companies a young Warren Buffett got to sift through.

 

https://static1.squarespace.com/static/5ea6570a0ba57d406203e048/t/64badaa2b743f43df05f5d0f/1689967267033/Q2+2023+Results+for+Cedar+Creek+Partners.pdf