FFBCW - First Financial Bancorp

[MrB]

Calc

FFBC-board.xlsx

[valueinvesting101]

As per latest filing strike price comes down from 12.535 to 12.436. Less than 1% decrease but it is higher than that considering $5.5-6 price of warrant.

 

Interestingly there is also share count component which increases number of share issued for warrant. Currently it stands at 1.0373 and will be applicable only when it reaches 1.1, if current payout strategy continues for another 4-5 quarters I can see it hitting that mark. That will increase warrant value by 10% if common's price. Nearly 30% gain. Need to keep close watch on this if entire market goes down due to Europe scare.

[Rabbitisrich]

Warrant holders, did anyone receive tax guidance regarding adjustments? How are you calculating your 2012 tax liability for these warrants?

[fareastwarriors]

ffbcw holdings

[stahleyp]

thanks for that fareast!

 

I wonder if mrstockwell is that brady entry there.

[racemize]

From my other post:

Just found this from a motley fool board while looking for the dividend adjustment:

 

Implied volatility is higher compared to some other warrants, such as FFBCW. The FFBC warrants are actually already in the money, with 7 years left. The bank is overcapitalized and ramping up dividends. Yes, there is dividend protection on FFBCW as well. Todd Combs held about two thirds of the warrants, but liquidated so that he could join Berkshire.

 

http://www.sec.gov/Archives/edgar/data/708955/00011442041003......

 

---

 

"...a regular quarterly cash dividend on shares of our common stock out of surplus or net profits legally available therefor (determined in accordance with United States generally accepted accounting principles in effect from time to time). Ordinary cash dividends will not include any cash dividends paid subsequent to December 23, 2008 to the extent the aggregate per share dividends paid on our outstanding common stock in any quarter exceed $0.17, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction."

 

So I think there is a downward adjustment to the stock price for anything above $0.17 per quarter. This is consistent with, though not demonstrated by, the earlier passage:

 

"Additionally, the exercise price of, and the number of shares underlying, the warrants will not be adjusted for any regular quarterly cash dividends that are in the aggregate less than or equal to $0.17 per share of common stock, which is the amount of the last dividend per share declared prior to the date on which the warrants were originally issued to Treasury on December 23, 2008."

 

It would be odd of them to mention a specific threshold below which no adjustment would be made for cash dividends, if the true intent were to simply state that no adjustment would be made for any dividend. But, anything is possible.

 

--

 

With $1 earnings today and 40% payout ratio, say 68 cent floor payout is 40% of about $1.75 earnings. For simplicity, after $1.75 earnings, 40% of it annually would reduce the strike. Say earnings hit $2 in 5 years. So you'd have roughly 3 years of earnings of $1.75 to $2.50 of which 40% would go to reduce the strike. Maybe $2 - 2.50 strike downward adjustment, at least in this scenario.

 

With $12.90 strike, say it goes down to $10.50. With $2.50 in earnings the stock is worth maybe $35. So $25 option value on sub-$5 purchase today. 5x. Do you think there's much more upside than this? For 5x over 7 years, WFC-WT might be a better, and safer, bet.

 

--

 

With $12.90 strike, say it goes down to $10.50. With $2.50 in earnings the stock is worth maybe $35. So $25 option value on sub-$5 purchase today. 5x. Do you think there's much more upside than this?

 

No, that's about what I'm projecting as well. But I'll add that you aren't paying much for any growth in that scenario. This is an overcapitalized bank, so I would guess acquisitions will be coming. Regardless, it doesn't factor into my thesis.

 

5X one's money in seven years is great. But the intriguing part is that the business doesn't have to be anything but utterly mundane to enjoy these results.

 

For 5x over 7 years, WFC-WT might be a better, and safer, bet.

 

I don't know. Assume both balance sheets are equally safe, and reverse engineer it. To return 5X on WFC-WT, that warrant would need to be worth $45. So the stock would need to be around $79 on the high side (assuming no strike reduction) and $65 on the low side (assuming $2 annual strike reduction, which I think is a little ambitious).

 

WFC needs to roughly triple, FFBC needs to roughly double. Or, WFC would need a $420B market cap, and maybe $3.6T in assets to deserve that. FFBC would need a $2B market cap, and maybe $17B in assets to deserve that.

 

That's a very rough comparison. I like both warrants (and both banks), but own just FFBCW.

 

--

 

Already increasing the dividend materially:

 

Dividend policy for the foreseeable future will be to payout 100% of quarterly earnings

 

Introducing a 100% dividend payout ratio comprised of two components:

–

Recurring dividend based on stated payout of between 40% - 60% of quarterly earnings; currently $0.12 per share

–

Variable dividend based on the remainder of quarterly earnings; $0.15 per share based on second quarter 2011 earnings

 

http://www.snl.com/interactive/lookandfeel/100255/FFBC_Inves......

 

 

Thread found on Value Founds MF Board

[stahleyp]

race, I'm really not sure why these are so cheap. granted, isn't has cheap and doesn't have the same upside as BAC, but it was pretty well managed during the downturn from what I can understand. It might be a liquidity thing, too. There are quite a few days where it doesn't trade at all.

[PlanMaestro]

It's also a smaller bank, and being acquired would kill the time value of the warrant. Same with Hartford, Lincoln, and others.

[stahleyp]

ah yes, good point there too, plan.

 

If we look at everything there isn't much time value to the options though.

 

The strike is at $12.90 (originally) Even though, with the dividend payouts exceeding the .17 threshold, I'm guessing that it's closer to $12.50.

 

But, to be conservative, let's go with $12.90.

 

$16 (current price) - $12.90 is $3.10 for intrinsic value. The warrants are currently around $5.50. If we assume they are purchased, I'd imagine it would be a decent premium to where they are now (could be wrong on this assumption). I'd imagine that the premium would probably be more than $2 or so.

 

So the market is basically pricing these as virtually no growth over the next few years or a buy out at a small premium. I suppose we have the nice optionality of decent growth and no buyout, too, which doesn't seem to be price in.

 

[enoch01]

It's also a smaller bank, and being acquired would kill the time value of the warrant. Same with Hartford, Lincoln, and others.

 

That's why I sold these (I was part of that MF thread).

[compoundinglife]

ah yes, good point there too, plan.

 

If we look at everything there isn't much time value to the options though.

 

The strike is at $12.90 (originally) Even though, with the dividend payouts exceeding the .17 threshold, I'm guessing that it's closer to $12.50.

 

But, to be conservative, let's go with $12.90.

 

$16 (current price) - $12.90 is $3.10 for intrinsic value. The warrants are currently around $5.50. If we assume they are purchased, I'd imagine it would be a decent premium to where they are now (could be wrong on this assumption). I'd imagine that the premium would probably be more than $2 or so.

 

So the market is basically pricing these as virtually no growth over the next few years or a buy out at a small premium. I suppose we have the nice optionality of decent growth and no buyout, too, which doesn't seem to be price in.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ffbcw-tarp-warrants-for-ffbc/msg84622/#msg84622

 

12.436 as of 9/2012. Looks like the past two quarters they did not pay out above the .17 hurdle.

 

[compoundinglife]

ah yes, good point there too, plan.

 

If we look at everything there isn't much time value to the options though.

 

The strike is at $12.90 (originally) Even though, with the dividend payouts exceeding the .17 threshold, I'm guessing that it's closer to $12.50.

 

But, to be conservative, let's go with $12.90.

 

$16 (current price) - $12.90 is $3.10 for intrinsic value. The warrants are currently around $5.50. If we assume they are purchased, I'd imagine it would be a decent premium to where they are now (could be wrong on this assumption). I'd imagine that the premium would probably be more than $2 or so.

 

So the market is basically pricing these as virtually no growth over the next few years or a buy out at a small premium. I suppose we have the nice optionality of decent growth and no buyout, too, which doesn't seem to be price in.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ffbcw-tarp-warrants-for-ffbc/msg84622/#msg84622

 

12.436 as of 9/2012. Looks like the past two quarters they did not pay out above the .17 hurdle.

 

From the last annual:

 

Warrants to purchase 465,117 shares of the Company's common stock were outstanding as of December 31, 2012, 2011 and 2010, respectively.

These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of $12.34 and

expire on December 23, 2018.

 

12.34

[stahleyp]

wow, even lower strike than I suspected. Thanks compounding!

 

the common is trading around 1.3 of book...looks to be the same as 2009 level.

[compoundinglife]

wow, even lower strike than I suspected. Thanks compounding!

 

the common is trading around 1.3 of book...looks to be the same as 2009 level.

 

I need to go back and re-read the prospectus and the earlier part of this thread, I didn't expect the strike to get reduced from the last 2 divs. Also keep in mind this means its a little bit closer to crossing the threshold where the warrant becomes the right to purchase 1 and 1/10th shares of stock.

[valueinvesting101]

Dividend payout has been above 17 cents for last two quarters as well.

 

http://www.nasdaq.com/symbol/ffbc/dividend-history#.UUfBPzIxXoI

[compoundinglife]

Dividend payout has been above 17 cents for last two quarters as well.

 

http://www.nasdaq.com/symbol/ffbc/dividend-history#.UUfBPzIxXoI

 

Ok that makes much more sense. I just looked at the Google Finance chart and it had them at 15 cents for the last two.

[stahleyp]

http://www.sec.gov/Archives/edgar/data/708955/000108636414000864/first.financial.bancorp..txt

 

Looks like Blackrock bought a little over 9% of shares outstanding in the common.