Monday, October 29, 2007

Remember the Good Old Days?

Do you remember the good old days when every bank investor only wanted to own banks that had deposits in Florida? That's where the growth was, and everything else was looked down upon with scorn. Things are a little different now judging by the latest crop of Bank earnings that have come out. The latest taste of too much growth comes from BankAtlantic Bancorp, Inc. (BBX) which reported earnings on October 25.

"Non-performing loans increased from $21.8 million at June 30, 2007 to $165.4 million at September 30, 2007 resulting primarily from the placement of eleven commercial real estate loans totaling $148.7 million on non-accrual status. As a result, the ratio of non-performing loans to total loans increased from 0.47% at June 30, 2007 to 3.53% at September 30, 2007 and the ratio of non-performing assets to total loans plus other assets increased from 0.94% at June 30, 2007 to 3.74% at September 30, 2007.

"The Bank's loss experience for the quarter ended September 30, 2007 was a net charge-off of $11.3 million compared to a net recovery of $0.2 million for the quarter ended September 30, 2006. Included in the $11.3 million net charge-off was $8.8 million related to the write-down of one 'builder land bank loan' and consumer net charge-offs of $1.6 million, representing primarily home equity lines of credit. ('Builder land bank loans' are characterized as loans made to borrowers with agreements to sell the underlying collateral to national and local home builders pursuant to option contracts.)"

The market has beaten the stock price down to $4 a share as of today, or a market capitalization of $238 million. BBX owns around 2.3 million shares of Stifel Financial Corp (SF) which is valued at approximately $136 million. BBX also has warrants to purchase more SF at $36 a share. If you have a strong stomach and buy this one you are practically getting the bank operations for nothing.

Beware, however, that its capital ratios may deteriorate further. At 6/30/07 the relevant capital ratios were:

Core capital (leverage) ratio 7.48%
Tier 1 risk-based capital ratio 10.62%
Total risk-based capital ratio 12.34%

An institution is considered well capitalized if its ratios exceed the following percentages:

Leverage Ratio > = 5%
Tier 1 Risk-Based > = 6%
Total Risk-Based > = 10%

The stock is now trading at only half of its book value, if you can believe the book value, as compared to 1.6 times back during the good old days.

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