CRBC - Citizens Republic Bancorp

[Kraven]

Banks don't seem to get too much traction on the board, but I thought this was an interesting one to bring to people's attention.

 

CRBC is a regional bank located in Flint, Michigan - so it's in the belly of the beast.  Some background.  Citizens has been around for well over 100 years.  Beginning in the 1980s they went on an acquisition spree picking up banks mainly in and around the Michigan area.  Their largest acquisition was Republic Bank in 2006.  This led to the creation of a new holding company and thus Citizens Republic was born.

 

The Republic Bank acquisition couldn't have come at a worse time and proved to be disastrous.  The financial crisis hit in 2007 and it turned out that Republic had been quite lax in their lending standards.  The bad loans piled up and the stock price fell from around $30 in 2006 to a low of about $0.55.  As I write this the stock is around $0.68.  In order to survive CRBC took $300 mil in TARP, diluted the hell out of the stock and in some respects it seemed like game over.  NPAs and NPLs grew steadily into 2009 and mainly due to high charge offs they have had heavy losses for years.

 

But an interesting thing happened.  New management took over, primarily Cathleen Nash as CEO.  They made it their mission to get the bank out of this death spiral.  They announced that they would aggressively charge off their bad loans and sell as many as they could.  For example, total assets have gone from close to $13 bil in 2008 to a bit over $9 bil now.  

 

Here's the most interesting part.  They have written off so much at this point that their Texas Ratio is down under 20, 30-89 pd is under 1% (the lowest in years) and they are over reserved.  In addition, due to past losses they have almost $300 mil in DTAs which has a complete valuation allowance against it.  They are currently selling around 2x p/ptpp.  Management has said repeatedly that the "plan" to rid themselves of their bad loans is almost complete and that they fully expect to return to profitability by the 3Q this year.  I know, take what management says with a grain of salt, but in this case it is hard to see how it wouldn't be accurate.  Since they have been so aggressive with the charge offs, absent a big change in their loan book, there isn't so much to write off anymore and the quality of the loan book looks very good (for example, almost no C&D loans, subprime, etc.).  As they are over reserved their provisioning will come way down (currently is around 4% of loans and they have said it will drift down to 2% over time).  And once profitability is on the horizon they can start releasing their DTAs.  

 

TTM PTPP is around $132 mil.  With about 397 mil shares outstanding that is rougly $0.33/share.  If you assume charge offs (and thus provisioning) comes back to a more normal level and taxes will be low if non-existent (in fact, likely will get a boost from reversing their valuation allowance), you can see how at the current $0.68 or so, this is potentially very cheap.

 

Note that in order to comply with NASDAQ listing rules (keeping share price over $1), they are doing a reverse split (1 for 10) which will be effective today and will show up as of July 5.  There are many in the market who seem to think this somehow affects the fundamentals and it has caused some degree of volatility in the stock lately.

 

Final point.  As noted, they took $300 mil in TARP.  They are going to have to pay that back, but have said that they have no plans to do so anytime soon.  They most likely will pay it back in a couple of years before the rate resets from 5% to 9%.  In order to pay it back they will almost certainly have to dilute some more - whether in whole or in part remains to be seen.  They will probably be able to issue some debt, some new preferreds, some retained earnings, some dilution and take care of it at the time.

 

Curious as to others thoughts.

[tnp20]

C&D => 7 Construction & Development 204,357,000 3.56% of assets 9.43% 90 day+ past due.

 

Its tied to Michigan economy which is SLOOOOOOOOOWLY recovering and double dip would make it risky.

 

Its still under FDIC corrective action.

 

$125M 5.75% bonds are due 2013.

 

 

[Kraven]

C&D => 7 Construction & Development 204,357,000 3.56% of assets 9.43% 90 day+ past due.

 

Its tied to Michigan economy.

 

Its still under FDIC order.

 

 

 

C&D at 3.56% is quite low given the circumstances and is down from over 9%.  I shouldn't have said almost no C&D - should have said low C&D, sorry.  Yes, I mentioned the Michigan economy.  That is what it is.  They are in compliance with their order.  It stems from their time during the financial crisis.  Again, that is what it is.  At 2x PTPP you aren't getting JPM or WFC.

[tnp20]

why not buy the Pfd CTZ-A ?

 

About $3-4 back divi (with interest) and to par would mean $7-8 return over next year or so plus getting paid at 10% rate based on current price.

[PlanMaestro]

Here is my take on CRBC from a year ago

 

http://variantperceptions.wordpress.com/2010/07/23/banks-in-my-mind-citizens-republic-bancorp/

 

But even more interesting are the comments to follow the progress of the bank the last few quarters.

 

The big issue is the very low TCE ratio (tangible common equity / tangible assets). Cathy Nash has been flushing NPAs taking equity charge-offs. The Texas Ratio is low but that is because the capital ratios suffered.

 

Her strategy is to show a couple of quarters of profit so she can reverse the DTA. A friend call them to inquire about the regulators' position on TCE ratio and they say that they have not inquired once about it. But still, other more profitable and well capitalized banks have raised capital under those circumstances. I had a large position (for a bank) but sold because I did not like her hurry.

 

Another piece of info is that Tom Brown (Second Curve) bought the last Q along with SNBC (another bank I had and that now follow closely). Also worries on a reverse stock split, that I do not care much about, have depressed the stock.

 

 

 

 

[Kraven]

Here is my take on CRBC from a year ago

 

http://variantperceptions.wordpress.com/2010/07/23/banks-in-my-mind-citizens-republic-bancorp/

 

But even more interesting are the comments to follow the progress of the bank the last few quarters.

 

The big issue is the very low TCE ratio (tangible common equity / tangible assets). Cathy Nash has been flushing NPAs taking equity charge-offs. The Texas Ratio is low but that is because the capital ratios suffered.

 

Her strategy is to show a couple of quarters of profit so she can reverse the DTA. A friend call them to inquire about the regulators' position on TCE ratio and they say that they have not inquired once about it. But still, other more profitable and well capitalized banks have raised capital under those circumstances. I had a large position (for a bank) but sold because I did not like her hurry.

 

Another piece of info is that Tom Brown (Second Curve) bought the last Q along with SNBC (another bank I had and that now follow closely). Also worries on a reverse stock split, that I do not care much about, have depressed the stock.

 

 

 

 

 

Plan, good points.  The low TCE ratio is a bit troubling.  I agree with you that the strategy is to regain profitability in order to reverse the DTAs which will obviously help the ratios.  I am not an accountant, but it was my impression that they do not need to have sustained profitability in order to release the DTAs, but simply be more than 50% sure that they will have enough profitability in order to utilize the DTAs.  That means a couple of things.  One, theoretically they could start releasing them next quarter or the following quarter,  Given that it's a GAAP measurement, it becomes self sustaining as releasing some of the DTAs can help support profitability itself thereby allowing more DTAs to be released.  As I said though, I am not an accountant so may be off on some of that. 

 

Another interesting factor is that in some respects they hold profitability in their hands and can "decide" when it comes.  I am not saying they can play games, but given that they are over reserved, so long as the loan book remains stable or keeps improving they could decide to only provision the amount necessary in order to be profitable.  Given their good PTPP, there is quite a bit of wiggle room there.  And again, that means a DTA release, in part, which will further them regaining profitability.

 

I hear you about her being in a hurry.  Seems to me it's a good thing, but I can see the other side.

 

Good point about Tom Brown.  I forgot about that.  Not only did he buy, but he took a large enough position that he owns more than 5%.

[PlanMaestro]

$125M 5.75% bonds are due 2013.

 

I do not know where you got that info, but CRBC's problem is not liquidity:

 

5.75% subordinated notes  February 2013  $17M

Variable rate junior subordinated debenture  June 2033 26M

7.50% junior subordinated debentures September 2066 48M           

Federal Home Loan Bank advances 711M

Other borrowed funds 104M

TOTAL LONG TERM DEBT $907M

 

Especially when you consider the $137M in cash, $496M in money market investments, and the $2,119M in securities available for sale. You might consider that TOO MUCH liquidity is more of a problem.

 

And regarding the "corrective action" ... where did you get that? They are only under a written agreement with the OFIR and the Chicago FED, and they are complying with all their requests.

 

On December 20, 2010, Citizens received a response from the FRBC and OFIR regarding the plans previously submitted under the Written Agreement. The response indicated that for most items, the submitted plans were acceptable and that either no further action was necessary or only continued monitoring or verification by Citizens board or the regulators was required. The response requested further enhancements to the ALLL methodology, which Citizens made and the revised methodology was submitted for further review. The nature of the enhancements primarily related to additional documentation and did not have an impact on the overall methodology or the recorded balance of the allowance for loan losses. The response also required modifications to the previously submitted capital plan by January 31, 2011. The modified capital plan was submitted within the required timeframe and Citizens is awaiting a response from the regulators.

[Kraven]

"The modified capital plan was submitted within the required timeframe and Citizens is awaiting a response from the regulators."

 

 

Cathy Nash said on the last CC that the plan was accepted by the regulators.

[tnp20]

You are indeed correct Plan.

[PlanMaestro]

I agree with you that the strategy is to regain profitability in order to reverse the DTAs which will obviously help the ratios.  I am not an accountant, but it was my impression that they do not need to have sustained profitability in order to release the DTAs, but simply be more than 50% sure that they will have enough profitability in order to utilize the DTAs.  That means a couple of things.  One, theoretically they could start releasing them next quarter or the following quarter,  Given that it's a GAAP measurement, it becomes self sustaining as releasing some of the DTAs can help support profitability itself thereby allowing more DTAs to be released.  As I said though, I am not an accountant so may be off on some of that.  

 

Another interesting factor is that in some respects they hold profitability in their hands and can "decide" when it comes.  I am not saying they can play games, but given that they are over reserved, so long as the loan book remains stable or keeps improving they could decide to only provision the amount necessary in order to be profitable.  Given their good PTPP, there is quite a bit of wiggle room there.  And again, that means a DTA release, in part, which will further them regaining profitability.

 

I hear you about her being in a hurry.  Seems to me it's a good thing, but I can see the other side.

 

Good point about Tom Brown.  I forgot about that.  Not only did he buy, but he took a large enough position that he owns more than 5%.

 

I am not an accountant either but it would be interesting to know what are the rules.

 

The problem is that the DTA as tangible asset is very debatable. When I started investing in banks I avoided the ones with a large DTA because of the risk of a write-off/allowance. Though, the DTA would help with the  official ratios (Tier 1 Capital, Leverage ratio,...)

[PlanMaestro]

I hear you about her being in a hurry.  Seems to me it's a good thing, but I can see the other side.

 

Kraven, I can see your side too, and looks like that Wall Street analysts think she is "bold," "decisive" and "brilliant." I do not know, I think those are too many praises for a human being especially coming from Wall Street analysts.

 

Citizens Republic loss seen as win: Immediate pain creates future gain

Crain's Detroit Business

http://webcache.googleusercontent.com/search?q=cache:HMiPo3OKTvoJ:www.crainsdetroit.com/article/20110508/SUB01/305089968/citizens-republic-loss-seen-as-win-immediate-pain-creates-future-gain+Citizens+Republic+loss+seen+as+win:+Immediate+pain+creates+future+gain&cd=1&hl=en&ct=clnk&client=firefox-a&source=www.google.com

[Kraven]

Plan,

 

I completely agree with you about DTAs as a tangible asset.  But that's the interesting thing here.  The entire $293 mil or so DTA has a valuation allowance against it, so it isn't carried on the balance sheet at all.  And in terms of utilizing DTAs themselves, obviously there needs to be profitability - that is, no profits, no tax, no use of DTAs.  However, what I was talking about was the valuation allowance.  In that case, I believe it only needs to be "more likely than not" that the DTAs can be used in the future.  So you don't actually have to be profitable enough to use them all, you only need to think it's more likely than not that you can in order to start releasing the valuation allowance.  Once released that amount will immediately accrue to profitability, at least on a GAAP basis.  I think this means that they are set up to have a monster quarter - all they need is to reach profitability and they can juice it with a release of the allowance.  Again, I am not an accountant, so if anyone is please chime in.

 

In terms of Nash being "bold", "decisive", etc., sure, i agree those are too many praises.  I just think she's doing her job and wonder why more banks haven't followed this approach to be honest.  Just rip the band-aid off and be done with it.  I do think that they have set themselves up that even if Michigan struggles and/or we double dip, they are well positioned.  If you believe Berkowitz, we are already 50-60% of the way through the bad 2006-2007 loans.  CRBC has gone one step further and basically rid themselves of most of the bad loans.  It's hard to see too much downside to that approach, at least in this case.

[PlanMaestro]

If you believe Berkowitz, we are already 50-60% of the way through the bad 2006-2007 loans.  CRBC has gone one step further and basically rid themselves of most of the bad loans.  It's hard to see too much downside to that approach, at least in this case.

 

 

It is not just Berkowitz saying it, all banking credit ratios are saying it too. Texas, NPAs, 30-90 delinquencies, provisions, charge-offs, number of failing banks per month, all peaked more that a year ago. American banks, not the Europeans, are for sure more than 60% through it.

 

The downside for CRBC is that the regulators could get restless and forced them to a equity injection with a current price well below intrinsic value... or thinking twice about it, you are right. The downside is limited, but the problem is that the upside could get killed.

[Kraven]

 

The downside for CRBC is that the regulators could get restless and forced them to a equity injection with a current price well below intrinsic value... or thinking twice about it, you are right. The downside is limited, but the problem is that the upside could get killed.

 

That is certainly possible.  I don't see the regulators doing that though, although who knows.  They still have $300 mil in TARP which they don't plan to repay for a while (maybe 2 years at the earliest).  And for whatever it's worth, they still have the $293 mil of DTAs which we were talking about before.  As soon as they believe it is more likely than not that they can utilize some or all of them, they can get rid of the valuation allowance.  That will provide a boost to earnings and therefore their ratios.

 

 

[rijk]

very interesting opportunity, indeed looks like there is limited downside here while the upside hasn't been reflected in the current stock price (yet).....

 

what about earnings power going forward, is the $132 million PTPP a reasonable estimate or would a conservative earning power figure be more in line with pre-crisis (say average 2001-2006) NI figures of approx $70 million?

 

althoug they got rid of a substantial portion of their goodwill, it's amazing that they are still carrying $328 million, if they really wanted to make a fresh start, this should have been written off too......

 

is citizen's bank the exception (cheap valution vs relatively decent shape) or are there many regional bank opportunities like this

 

why wouldn't the market have not yet picked up on this? i noticed there was only one analyst question on the Q1 call......

 

regards

rijk

[Kraven]

very interesting opportunity, indeed looks like there is limited downside here while the upside hasn't been reflected in the current stock price (yet).....

 

what about earnings power going forward, is the $132 million PTPP a reasonable estimate or would a conservative earning power figure be more in line with pre-crisis (say average 2001-2006) NI figures of approx $70 million?

 

althoug they got rid of a substantial portion of their goodwill, it's amazing that they are still carrying $328 million, if they really wanted to make a fresh start, this should have been written off too......

 

is citizen's bank the exception (cheap valution vs relatively decent shape) or are there many regional bank opportunities like this

 

why wouldn't the market have not yet picked up on this? i noticed there was only one analyst question on the Q1 call......

 

regards

rijk

 

Banks are very tricky.  It's difficult to look at absolute past numbers, like net income, and use that as your basis for earning power.  Assets and liabilities change, etc.  So I wouldn't look to net income from 2001-2006 in order to come up with earning power; I'd use the PTPP number as your basis, or starting place, to come up with an earning power.  Note that PTPP isn't a GAAP figure, so people figure it in various different ways.  

 

In terms of their goodwill, they have written off a pretty significant amount.  If memory serves, they wrote off about $250 mil a couple years ago.  Just focus on TBV, or in their case TCBV (tangible common book value, since they have TARP pref stock too).

 

I think that CRBC has been more aggressive than most in attempting to clear up their bad loans and get back into good shape.  But there are plenty of opportunities among the community, small and regional banks.  As for why the market hasn't picked up on it, it's the same story it always is with banks.  They are cyclical, boring and difficult to analyze.  The biggest factor is probably one of perception, especially after the financial crisis.  After the debacle that was 2007-2008, all banks were tarred and feathered and all equally responsible for the crisis, even though of course that wasn't true.  A community bank has less to do with what the large money center and investment banks do than many of the companies discussed on this board.  Even a fairly large regional like CRBC has nothing really to do with it.  They weren't a sponsor of securitizations, they don't manage SIVs, they don't speculate in derivatives, etc.  

 

In terms of there being 1 analyst question on the Q1 call, CRBC has been left for dead.  The market hasn't yet recognized that they are actually in really good shape.  Banks don't show up on screeners in a good way, so you have to dig a bit to see what is really going on.  CRBC when you pull up their numbers, at least on something like Yahoo Finance or what have you, still looks awful.  But that is the beauty of it.

[rijk]

thanks for your insights Kraven

 

indeed earnings power is hard to estimate, that's why i prefer to use a more conservative number, like this, only a severe double dip will get them into trouble.....

 

the goodwill and PFD stock is a bit confusing when looking at valution

 

would it be safe/correct to say that the future $293 million TDA write back and future redemption of PFD stock of $278 million can be considered a wash for valuation purposes, which would leave us with (based on Dec 2010 figures) a valuation of $274/$694 (1,012-318)= 0.39 x TCBV?

 

looks like a lot has to go wrong to loose on this one...

 

regards

rijk

[Kraven]

Rijk, you're welcome. 

 

"indeed earnings power is hard to estimate, that's why i prefer to use a more conservative number, like this, only a severe double dip will get them into trouble....."

 

I wasn't sure what you meant by using a more conservative number.  Hopefully I didn't confuse you.  My point isn't that you can't come up with earning power, only that net income isn't the best way to go about it.  That is, I wouldn't, for example, simply average some number of years' past net income and reach a valuation.  In terms of whether only a double dip would get them into trouble, I don't know about that.  A double dip is going to affect all banks at some level.  CRBC is tied to the Michigan economy, but they have already written off the bulk of their current bad loans.  A double dip could result in new bad loans, but given that the worst underwriting is (hopefully) behind us and they are over reserved, earnings power should be able to cover any future problems. 

 

"would it be safe/correct to say that the future $293 million TDA write back and future redemption of PFD stock of $278 million can be considered a wash for valuation purposes, which would leave us with (based on Dec 2010 figures) a valuation of $274/$694 (1,012-318)= 0.39 x TCBV?"

 

I wouldn't really look at it that way to be honest.  I would look at them as 2 completely separate items.  You could look at the DTAs as equity, but that would be aggressive.  I prefer to look at it more like a free option.  The preferred stock is going to have to be paid back obviously.  That's going to take cash and not accounting earnings.  The rate on the preferred will increase from 5% to 9% I believe in early 2014.  They plan to pay it back around that time, or perhaps just before.  Until then they are using it as relatively cheap money.  I believe current TCBV is around $8.20 (after giving effect to the reverse split, which is effective today).  That seems like a fair number.  I would expect to increase fairly quickly once they regain profitability, assuming they do.

 

 

 

[rijk]

ok, so TCBV is around $325 million now but could/would nearly double when they decide to write back the $293 million DTA, probably after a few profitable quarters..... looks like the stock gained 9% during the last 30 mins of trading today, wasn't me buying!!

 

regards

rijk

[PlanMaestro]

Banks are very tricky.  It's difficult to look at absolute past numbers, like net income, and use that as your basis for earning power.  Assets and liabilities change, etc.  So I wouldn't look to net income from 2001-2006 in order to come up with earning power; I'd use the PTPP number as your basis, or starting place, to come up with an earning power.  Note that PTPP isn't a GAAP figure, so people figure it in various different ways.  

 

Actually I disagree, historic pre-provision profitability is a very good predictor of future pre-provision profitability. But what you have to look at is ROA or PTPP/Assets.

 

In the case of CRBC the 2002-2006 numbers are pre-merger with Republic. This is a bank that should get a 1% ROA steady state. In other words, an average bank.

 

CRBC has 9.72B in assets so that is close to 97M in after tax earnings (135M pre-tax). You might also want to consider the DTA, CRBC is not going to pay taxes for a couple of years.

 

The key question, is how many shares CRBC will have when all this ends.

 

I think that CRBC has been more aggressive than most in attempting to clear up their bad loans and get back into good shape.  But there are plenty of opportunities among the community, small and regional banks.  As for why the market hasn't picked up on it, it's the same story it always is with banks.  They are cyclical, boring and difficult to analyze.  The biggest factor is probably one of perception, especially after the financial crisis.  After the debacle that was 2007-2008, all banks were tarred and feathered and all equally responsible for the crisis, even though of course that wasn't true.  A community bank has less to do with what the large money center and investment banks do than many of the companies discussed on this board.  Even a fairly large regional like CRBC has nothing really to do with it.  They weren't a sponsor of securitizations, they don't manage SIVs, they don't speculate in derivatives, etc.  

 

Absolutely, community banks have suffered the stupidity of the large banks that are benefiting from the unfair advantage of the perception that there is an implicit government guarantee. So they get financing in much better conditions than community banks despite that their credit history does not justify it.

 

Citizens did a stupid merger, but they did not cause the crisis.

[Kraven]

"ok, so TCBV is around $325 million now but could/would nearly double when they decide to write back the $293 million DTA, probably after a few profitable quarters..... looks like the stock gained 9% during the last 30 mins of trading today, wasn't me buying!!"

 

I wouldn't focus so much on the DTA except as a freebie in a way.  The $293 mil number can change depending on their circumstances.  But it is a large amount and as Plan notes, will mean that they won't be paying taxes for a while.  Also, as they start to release the valuation allowance it will provide a shot in the arm and juice earnings a bit.

 

"Actually I disagree, historic pre-provision profitability is a very good predictor of future pre-provision profitability. But what you have to look at is ROA or PTPP/Assets."

 

Plan, we are saying the same thing, I just didn't say it clearly enough.  This was my point exactly.  When I said not to focus on absolute past numbers, I meant that $132 mil, for example, in PTPP by itself doesn't tell you much.  You need to know what their earning assets are, etc.  I agree too that they should earn about the standard 1% ROA going forward in a steady state. The only wild card is what their provisioning will be.  As it drifts down, this should be very doable.

 

 

 

 

 

[Junto]

The challenge for CRBC will be ongoing loan demand and business opportunities moving forward. I owned the CTZ preferreds back in 2008-  mid-2009. I also traded the stock frequently, but I have just been watching it for the past couple of years. I am still on their email list; unfortunately most the emails seem to relate to the quarterly stock awards given to the directors ;)

 

My method for tracking the earning capacity of the business is two fold. Plan Maestro states the initial case which is looking at both what a standard performer return should be, 1% ROA and 15% ROE (Maybe closer to 10% moving forward for the next five years). The second is a more detailed analysis on the actual make-up of the balance sheet and the opportunities for the bank to capitalize on the earnings power within. I have not looked at CRBC specifically, and if I did, I would look at pre-provision earnings, net interest income plus fee income which is effectively the top line/revenue figure for the bank, loan growth, and loan to deposit/net interest margin ratio trends.

 

The banking environment remains tough. The primary challenge is maintaining net interest income as loan demand remains weak across the marketplace and yields on securities are disappointing. The best clients are getting superb interest borrowing rates. Interest expense has largely flattened out, main benefits will come at the shrinking of liabilities versus cost of funds declines moving forward. 

 

The lending environment is heating up for top credit but lower on the risk spectrum where banks can drive their yields remains a difficult sale to lending committees.

 

I am bullish on the sector, but primarily because I see the market as having sold off the regional banks more so than the long-term earnings power. I don't think you necessarily have to race into them but they should rebound in the second half of the year. I am more fans of regionals like NYB, FMER, PBCT, FNFG, and FNB which are better positioned long-term. CRBC to me would be a near term rebound investment but not a long-term opportunity.

[rijk]

"Especially when you consider the $137M in cash, $496M in money market investments, and the $2,119M in securities available for sale. You might consider that TOO MUCH liquidity is more of a problem."

 

"The key question, is how many shares CRBC will have when all this ends."

 

regarding the $300 million TARP repayment, if liquidity is not an issue and if equity will increase due to:

-moving from an unhealthy non performing loan situation requiring provisions to a healthy loan situation that could result in reversal op provisions

-approx $135 million TTM PTPP earnings

-reversal of DTA provision to earnings

why the dilution concern?

 

regards

rijk

[PlanMaestro]

regarding the $300 million TARP repayment, if liquidity is not an issue and if equity will increase due to:

-moving from an unhealthy non performing loan situation requiring provisions to a healthy loan situation that could result in reversal op provisions

-approx $135 million TTM PTPP earnings

-reversal of DTA provision to earnings

why the dilution concern?

 

Regulators and their capital ratios. If they pay TARP from their own liquidity it would reduce their equity (the TARP prefs are equity) and affect all the ratios. So despite being very cash flow positive and having all that liquidity there is always the danger of capital raise forced by the regulators at very low prices. There are plenty of examples, just look at the Puerto Rico banks (BPOP, FBP, ...)

 

If CRBC were not a regulated entity with expectations of certain capital ratios (like certain mREITs) I would buy all I can.

 

And actually this is a heavy argument to buy instead the large bank's TARP warrants. In case of a capital raise you are protected by the anti-dilution clauses negotiated by the Treasury. So if things go well or if they go bad, you are still buying a business VERY cash flow positive with LOTS of liquidity with 8-9 years to realize that value.  

 

Yes, all of them including the hated BAC are FCF positive and have lots of liquidity.

 

To buy the TARP warrants is not about the leverage. If you do not like leverage you can instead buy only 1/2 or 1/3 a standard position, and replicate a common stock position keeping the other half or third in cash. You would be very well protected on the downside by the cash and the anti-dilution clauses.

[Kraven]

EPS of $0.46/share.  1st profitable quarter after 12 straight quarters of losses.  All credit metrics have improved (other than a tiny increase in delinquencies).  Provisioning declined about 80% from 1st quarter.  It was a good quarter and demonstrates that their plan to clean up their mess has been successful at least so far.