Guest misterstockwell Posted July 29, 2011 Share Posted July 29, 2011 These are the TARP warrants for FFBC that now trade publicly. I like the bank--well run, overcapitalized, makes acquisitions, decent fundamentals. The warrants expire in December 2018, with a strike of 12.90. There are only ~465,000, and my clients and I own ~63,000. The guy Buffett hired that was running the hedge fund owned the vast majority of them before he was hired away(300K+). All this is well and good, but there is one interesting twist. All the Tarp warrants have a provision where the strike price is lowered penny-for-penny when the dividend level exceeds a certain amount. I am trying to confirm this number for FFBC, but I believe it is $.17/quarter. Interestingly, FFBC is so OVERcapitalized that they have instituted a new policy where they essentially pay out all of their earnings as dividends--yes, 100%! For this quater, that is $.27, and our strike goes to 12.80. This new policy will go on for the foreseeable future. A unique investment twist for sure. Link to comment Share on other sites More sharing options...
shalab Posted July 29, 2011 Share Posted July 29, 2011 You are right about the dividend price of .17/share per quarter beyond which the strike price of the warrants will decline. Link to comment Share on other sites More sharing options...
stahleyp Posted July 30, 2011 Share Posted July 30, 2011 If someone buys these, how does the strike price reduction work come tax time? I'm assuming it just reduces the cost basis? Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted July 30, 2011 Share Posted July 30, 2011 If someone buys these, how does the strike price reduction work come tax time? I'm assuming it just reduces the cost basis? It only matters tax-wise if you convert your warrants to common stock. Your basis in the stock would then be the warrant price you paid plus the strike price. If you buy the warrant and sell it in a few years, the strike price reduction doesn't matter(other than on the increase in value your warrant). Link to comment Share on other sites More sharing options...
stahleyp Posted July 30, 2011 Share Posted July 30, 2011 If someone buys these, how does the strike price reduction work come tax time? I'm assuming it just reduces the cost basis? It only matters tax-wise if you convert your warrants to common stock. Your basis in the stock would then be the warrant price you paid plus the strike price. If you buy the warrant and sell it in a few years, the strike price reduction doesn't matter(other than on the increase in value your warrant). Yeah, that's what I thought. I could have sworn I read something that the dividend strike price reduction was taxable in the year of the dividend distribution. I suppose I was wrong on that! Thanks for the input! :) Link to comment Share on other sites More sharing options...
abcd Posted August 1, 2011 Share Posted August 1, 2011 Each warrant represents 100 shares, correct? The reason I ask is TD Ameritrade seems to be treating this as a share rather than an option (if you try to place an order for 1 warrant at 6, it says the order value is $6, rather than $600) Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted August 1, 2011 Share Posted August 1, 2011 Each warrant represents 100 shares, correct? The reason I ask is TD Ameritrade seems to be treating this as a share rather than an option (if you try to place an order for 1 warrant at 6, it says the order value is $6, rather than $600) Wrong. It trades as a share. It's not an option, but a warrant Link to comment Share on other sites More sharing options...
stahleyp Posted September 27, 2011 Share Posted September 27, 2011 FFBC paid a dividend of 27 cents on 8/31. Does that mean the strike was reduced by 10 cents? Link to comment Share on other sites More sharing options...
enoch01 Posted September 27, 2011 Share Posted September 27, 2011 FFBC paid a dividend of 27 cents on 8/31. Does that mean the strike was reduced by 10 cents? Yes, that's correct. Link to comment Share on other sites More sharing options...
stahleyp Posted September 27, 2011 Share Posted September 27, 2011 Thanks, enoch. I appreciate it! Link to comment Share on other sites More sharing options...
Shane Posted September 28, 2011 Share Posted September 28, 2011 Misterstockwell, Thank you for the idea! I'm new to investing and don't know a whole lot about financials, how would you see their core businesses performing during a period of zero GDP growth in the U.S.? Link to comment Share on other sites More sharing options...
ValuableBehavior Posted October 5, 2011 Share Posted October 5, 2011 One thing worth mentioning, you should read the text from the 424b5 (text as follows): In the case of cash dividends or other distributions. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point), then the exercise price in effect prior to such record date will be reduced immediately thereafter to the price determined by multiplying the exercise price in effect immediately prior to the reduction by the quotient of (x) the market price (as defined below) of our common stock on the last trading day preceding the first date on which our common stock trades regular way on the principal national securities exchange on which our common stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of our common stock (such subtracted amount and/or fair market value, the “Per Share Fair Market Value”) divided by (y) such market price on the date specified in clause (x). Any such adjustment will be made successively whenever such a record date is fixed. The number of warrant shares will be increased to the number obtained by multiplying the number of warrant shares issuable upon exercise of a warrant immediately prior to such adjustment by the quotient of (a) the exercise price in effect immediately prior to the distribution giving rise to this adjustment divided by (b) the new exercise price as determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. If, after the declaration of any such record date, the related distribution is not made, the exercise price and the number of warrant shares then in effect will be readjusted, effective as of the date when our board of directors determines not to make such distribution, to the exercise price and the number of warrant shares that would then be in effect if such record date had not been fixed. Phew! What a passage. I read this to mean that the warrant price goes down by the percentage that the excess dividend is in relation to the stock price the previous day. In other words, if they distribute a dividend who's excess over the $.17 is 1% of marketcap, then the strike price goes down by 1%. It's not a penny for penny thing, if I'm understanding this correctly. Anyway, make sure you adjust for it in your valuations. For mine, I treat it kinda like a pseudo share buyback when I'm trying to value the warrants. Link to comment Share on other sites More sharing options...
enoch01 Posted October 5, 2011 Share Posted October 5, 2011 One wonders who wrote this. With anything around current prices and distributions, I calculate that the differences between the two methods to be pretty small as they relate to adjusting the strike price. I suppose I should be cheering for the "percentage method", high distributions, and low stock price! ;D Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted October 7, 2011 Share Posted October 7, 2011 One thing worth mentioning, you should read the text from the 424b5 (text as follows): In the case of cash dividends or other distributions. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point), then the exercise price in effect prior to such record date will be reduced immediately thereafter to the price determined by multiplying the exercise price in effect immediately prior to the reduction by the quotient of (x) the market price (as defined below) of our common stock on the last trading day preceding the first date on which our common stock trades regular way on the principal national securities exchange on which our common stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of our common stock (such subtracted amount and/or fair market value, the “Per Share Fair Market Value”) divided by (y) such market price on the date specified in clause (x). Any such adjustment will be made successively whenever such a record date is fixed. The number of warrant shares will be increased to the number obtained by multiplying the number of warrant shares issuable upon exercise of a warrant immediately prior to such adjustment by the quotient of (a) the exercise price in effect immediately prior to the distribution giving rise to this adjustment divided by (b) the new exercise price as determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. If, after the declaration of any such record date, the related distribution is not made, the exercise price and the number of warrant shares then in effect will be readjusted, effective as of the date when our board of directors determines not to make such distribution, to the exercise price and the number of warrant shares that would then be in effect if such record date had not been fixed. Phew! What a passage. I read this to mean that the warrant price goes down by the percentage that the excess dividend is in relation to the stock price the previous day. In other words, if they distribute a dividend who's excess over the $.17 is 1% of marketcap, then the strike price goes down by 1%. It's not a penny for penny thing, if I'm understanding this correctly. Anyway, make sure you adjust for it in your valuations. For mine, I treat it kinda like a pseudo share buyback when I'm trying to value the warrants. I read that, but I understood it to refer to anything BUT an ordinary cash dividend. It says "excluding cash dividends". Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted October 7, 2011 Share Posted October 7, 2011 Misterstockwell, Thank you for the idea! I'm new to investing and don't know a whole lot about financials, how would you see their core businesses performing during a period of zero GDP growth in the U.S.? It's a bank, so the coming recession and the tomfoolery with Operation Twist will hurt business just as it will at all financial institutions. However, they have tons of excess capital, so they can weather the storm better than most. Link to comment Share on other sites More sharing options...
MrB Posted December 8, 2011 Share Posted December 8, 2011 Misterstockwell, What do you make of their CRE loan portfolio? Makes up 40% of the loan port and the 90 days data does not look great, although 30-89 day has been coming in. Any feel for what's driving that? Quarter Comm RE 90+ Days Delq Perc Peers 2008 Q4 889,526,000 0 0.00 0.15 2009 Q1 881,990,000 0 0.00 0.44 2009 Q2 993,986,000 0 0.00 0.24 2009 Q3 1,746,408,000 36,327,000 2.08 0.16 2009 Q4 1,833,584,000 37,276,000 2.03 0.17 2010 Q1 1,775,269,000 62,761,000 3.54 0.31 2010 Q2 1,746,516,000 84,575,000 4.84 0.44 2010 Q3 1,706,136,000 96,411,000 5.65 0.61 2010 Q4 1,650,182,000 92,803,000 5.62 0.45 2011 Q1 1,578,855,000 110,128,000 6.98 0.48 2011 Q2 1,594,477,000 111,130,000 6.97 0.58 2011 Q3 1,617,214,000 117,314,000 7.25 0.4 Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted January 25, 2012 Share Posted January 25, 2012 Never saw your question MrB--sorry. They have made numerous acquisitions and have FDIC loss coverage on a significant percentage. The reports are a real mess with the loss-sharing agreement. They beat numbers again this quarter, and the special dividend remains in place(100% of earnings). That means the FFBCW strike price will now go to $12.56. So at 17.90, the warrants are 5.34 in the money. Last sale price was 5.70. You are paying 36 cents for seven years of time. Not a bad deal. The only rub is that it trades thinly, and I am certainly not giving mine up to increase liquidity. Link to comment Share on other sites More sharing options...
BargainValueHunter Posted January 26, 2012 Share Posted January 26, 2012 Never saw your question MrB--sorry. They have made numerous acquisitions and have FDIC loss coverage on a significant percentage. The reports are a real mess with the loss-sharing agreement. They beat numbers again this quarter, and the special dividend remains in place(100% of earnings). That means the FFBCW strike price will now go to $12.56. So at 17.90, the warrants are 5.34 in the money. Last sale price was 5.70. You are paying 36 cents for seven years of time. Not a bad deal. The only rub is that it trades thinly, and I am certainly not giving mine up to increase liquidity. How would a buyout affect the warrants? Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted January 26, 2012 Share Posted January 26, 2012 It is exactly the same as if they were options. If the buyout is for $20, then FFBCW is worth 20-12.56=7.44. The warrant is the right to buy the stock at(soon-to-be) 12.56. A buyout eliminates all time premium. Link to comment Share on other sites More sharing options...
Guest misterstockwell Posted January 26, 2012 Share Posted January 26, 2012 One thing worth mentioning, you should read the text from the 424b5 (text as follows): In the case of cash dividends or other distributions. If we fix a record date for making a distribution to all holders of our common stock of securities, evidences of indebtedness, assets, cash, rights or warrants (excluding ordinary cash dividends (as defined below), dividends of our common stock and other dividends or distributions referred to in the preceding bullet point), then the exercise price in effect prior to such record date will be reduced immediately thereafter to the price determined by multiplying the exercise price in effect immediately prior to the reduction by the quotient of (x) the market price (as defined below) of our common stock on the last trading day preceding the first date on which our common stock trades regular way on the principal national securities exchange on which our common stock is listed or admitted to trading without the right to receive such distribution, minus the amount of cash and/or the fair market value of the securities, evidences of indebtedness, assets, rights or warrants to be so distributed in respect of one share of our common stock (such subtracted amount and/or fair market value, the “Per Share Fair Market Value”) divided by (y) such market price on the date specified in clause (x). Any such adjustment will be made successively whenever such a record date is fixed. The number of warrant shares will be increased to the number obtained by multiplying the number of warrant shares issuable upon exercise of a warrant immediately prior to such adjustment by the quotient of (a) the exercise price in effect immediately prior to the distribution giving rise to this adjustment divided by (b) the new exercise price as determined in accordance with the immediately preceding sentence. In the case of adjustment for a cash dividend that is, or is coincident with, a regular quarterly cash dividend, the Per Share Fair Market Value would be reduced only by the per share amount of the portion of the cash dividend that would constitute an ordinary cash dividend. If, after the declaration of any such record date, the related distribution is not made, the exercise price and the number of warrant shares then in effect will be readjusted, effective as of the date when our board of directors determines not to make such distribution, to the exercise price and the number of warrant shares that would then be in effect if such record date had not been fixed. Phew! What a passage. I read this to mean that the warrant price goes down by the percentage that the excess dividend is in relation to the stock price the previous day. In other words, if they distribute a dividend who's excess over the $.17 is 1% of marketcap, then the strike price goes down by 1%. It's not a penny for penny thing, if I'm understanding this correctly. Anyway, make sure you adjust for it in your valuations. For mine, I treat it kinda like a pseudo share buyback when I'm trying to value the warrants. I was wrong in my previous answer. There was a question on the call--you are correct, there is a formula, and it is not penny for penny. Management had no idea what the strike price was on the warrants, for what that is worth! Link to comment Share on other sites More sharing options...
turar Posted February 16, 2012 Share Posted February 16, 2012 So what is the current strike price? Is there a definitive source on that somewhere besides the convoluted paragraph above? Link to comment Share on other sites More sharing options...
valueinvesting101 Posted February 18, 2012 Share Posted February 18, 2012 Stock has paid 3 dividend above 17 cents so far, 27c, 27c and 31c . 10c works around 0.6% of $17 which was the price when stock went ex-dividend. I think strike price comes down from $12.90 to $12.65. Not very significant but then you are gaining based on warrant price which is hovering between $5-$6 that works around 5% return for 25 cents reduction in strike. Not sure how strike price is changed in case of buyback. Also as per contract management is supposed to notify all the warrant holder in case of change in strike price. Little surprised to find that management is reluctant to provide this information. Link to comment Share on other sites More sharing options...
Olmsted Posted February 19, 2012 Share Posted February 19, 2012 I agree, these warrants are very cheap relative to the common. But what exactly is the thesis on the common? It's not exactly cheap, but I understand that their balance sheet is higher quality than the average community bank. Is the thesis that they will use their stock as currency to roll up troubled and/or cheaper banks in a series of accretive transactions? Perhaps the cheap warrants are signalling that the common is fairly priced, is not going to move very much, and shareholder return will be a function of dividends going forward. Just trying to think this one through. Link to comment Share on other sites More sharing options...
valueinvesting101 Posted March 14, 2012 Share Posted March 14, 2012 Latest SEC filing talks about changes to strike price and number of warrants. I could not understand last paragraph though it looks like there is adjustment to number of shares as well in addition to strike price. Latest SEC filing excerpt: On August 23, 2011, the Company's Board of Directors declared a quarterly dividend of $0.27 per share of Common Stock, payable on October 3, 2011, to shareholders of record at the close of business on September 2, 2011. Additionally, on October 25, 2011, the Company's Board of Directors declared a quarterly dividend of $0.27 per share of Common Stock, payable on January 3, 2012, to shareholders of record at the close of business on December 2, 2011. And finally, on January 24, 2012, the Company's Board of Directors declared a quarterly dividend of $0.31 per share of Common Stock, payable on April 2, 2012, to shareholders of record at the close of business on March 2, 2012. These dividends trigger a requirement under Section 12 of the Certificate for adjustments to the Exercise Price and the Warrant Share Number. Accordingly, the Company gave notice to Warrant holders that, effective at the close of business on March 13, 2012, the Exercise Price had been adjusted from $12.90 to $12.629. No adjustment was made to the Warrant Share Number, because the amount of such adjustment (before giving effect to the minimum adjustment threshold or rounding as specified in Section 12(E) of the Certificate) would have been an increase to approximately 1.0215 shares, representing an increase of less than one-tenth of a share. In accordance with Section 12(E), this amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate 1/10th of a share of Common Stock, or more, or on exercise of a Warrant if it shall earlier occur. Link to comment Share on other sites More sharing options...
stahleyp Posted March 29, 2012 Share Posted March 29, 2012 A little local news. http://news.cincinnati.com/article/20120328/BIZ/303270134/Small-banks-like-proposal?odyssey=mod|newswell|text|FRONTPAGE|p Link to comment Share on other sites More sharing options...
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