My contrarian investment strategy hasn’t been working out too well for me lately. It’s discouraging, but along with some mind-numbing patience, contrarian investing requires acceptance of a certain amount of risk, and faith that the markets will eventually turn around. So, I’m sticking with the long-term aspects of this strategy.
I post all of my portfolio holdings for everyone to see. As you can read, most of my individual stock holdings are micro/smallcap community bank stocks, and like everything else in the stock market (especially financials), they’ve taken a beating this past 1-2 years.
However, I’m still continuing to invest in select profitable low-priced stocks in the smallcap financial sector, under the assumption that many are being unjustly undervalued because of continuing losses from “big bank” stocks, and because of investors’ fear caused by worsening economic conditions.
With that in mind, I just doubled my position in M&F Bancorp, Inc. (MFBP). That sounds like sophisticated investor-speak, but I actually owned only 100 shares to begin with, so I now own 200 shares… big whoop.
M&F Bancorp, Inc. is the holding company for Mechanics and Farmers Bank, a nine-branch, microcap community bank headquartered in Durham, NC. Like another of my holdings, Citizens Bancshares (CZBS), M&F Bancorp, Inc. is an historically African-American institution created with the intention of helping their community grow by providing home and business loans to members, often unable to obtain financing elsewhere.
Also like Citizens Bancshares, MFBP has successfully endured the hardships that both our culture and economy has thrown at it for over 100 years. As a matter of fact, MFBP has shown a profit for every one of those years. I see no reason why both institutions shouldn’t be able to endure our current crisis.
Because of it’s microcap status and because it only has two million shares outstanding and is thinly-traded, there aren’t many analysts following MFBP.
You can evaluate the financials yourself, courtesy of SNL Financial, to see that MFBP, currently trading at $1.75/share, is significantly selling under it’s tangible book value of $12.50/share.
It’s also a profitable, well-capitalized bank that carries over $9.00/share in cash. However, Morningstar.com gives it (a somewhat dated) grade of “F” for financial health.
I think MFBP is extremely under priced right now, so I have another limit-order placed in case someone else is looking to sell some shares at a discount. At $1.75/share, I think the downside risk is well worth the upside potential and I’m buying for the long-term.
Quarterly filings (2008 year-end) have yet to be posted. Those results will give us a much better picture about how well (or how poorly) MFBP is managing in this unbearable recession.
It wouldn’t be unreasonable to assume that income will be down because of previous merger-related costs and an increase in non-performing assets due to economic conditions. However, this would have to be a significant loss for MFBP to break their yearly consecutive string of being a profitable bank.
Comments 9
It is tough investing right now. Look at doing swing trades with the short etf’s as long as it is a bear market. Forget the investing for now.
Just found your site, looks great! I’ll try to visit on a regular basis.
Posted 07 Mar 2009 at 4:55 pm ¶Just bought 300 more shares of MFBP today at $1.60/share. I now own a total of 500 shares.
An unusually large amount of shares of this micro cap bank traded hands the last two days. It probably has a lot to do with the bank President and CEO’s recent 10b5-1 stock purchase plan. I think her plan speaks for itself concerning the bank’s current stock price.
Posted 30 Apr 2009 at 11:14 pm ¶MFBP managed to make a $0.15/share profit this past quarter despite a continued challenging economic environment.
According to their most recent 10Q:
Book value decreased to $12.17 for the quarter, but is still calculated much higher than it’s current share price trading around $2.00/share.
The bank also continues to exceed regulatory requirements to be consider well capitalized.
Posted 13 May 2009 at 3:11 pm ¶M&F Bancorp, Inc., parent company of Mechanics and Farmers Bank (M&F Bank), today announced that it has received approximately $11.7 million from the Federal government’s Troubled Asset Relief Program (TARP). The TARP funds have been provided on a preferred basis due to M&F Bank’s designation as a Community Development Financial Institution (CDFI).
Excerpts via M&F Bancorp, Inc. Receives $11.7 Million from TARP
Posted 29 Jun 2009 at 6:30 pm ¶Just added to my position today, bought 275 more shares at $1.76/share to bring my total holdings to 775 shares. Still buying as a long-term investment and may buy more shares if it dips further.
Posted 09 Dec 2009 at 7:55 pm ¶Hi Guzzo,
I too have noticed MFBP simply because the discount to book value is huuugggge. Underneath the decent earnings and book value though, there are issues for concern with MFBP.
In the Q2 10K, 5.48% of the total loan book was unperforming (the fact that this doubled in one quarter would worry me a lot). Having said that, in Q3, the number went down slightly to 5.44%. While this is still high, it could be a sign that the deterioration at MFBP has come to an end. Also of note in the 10K is that 70% of the MFBP loanbook is in commercial real estate. Given that these loans have been historically highly risky, it makes me nervous about investing here.
Posted 25 Dec 2009 at 12:18 pm ¶Oh yeah, don’t get me wrong, there’s risk involved with all of the micro-cap bank stocks that I own. As a matter of fact, there’s plenty of this same risk involved with just about every micro-cap bank out there. Under performing and non-performing loans are up everywhere. But will it lead to failure?
I wouldn’t necessarily say that 70% of loans being in commercial real estate is a bad thing for MFBP. That’s what banks do.. they lend money. Who’s to say these loans are bad loans?
But I would have to agree with you that a doubling of non-performing assets from December 2008 until September 2009 (10Q) is a cause for concern.
Not that I’m trying to convince anyone to buy MFBP, but I look at things a little different with these investments.
If the success of these small community banks wasn’t important, The Fed wouldn’t be giving them TARP loans to help them through these tough times. The Fed won’t loan to a bank that’s in too much trouble.. period.
Here’s how I look at it – MFBP isn’t in trouble with NC State banking regulators or the FDIC, and it’s not even listed as one of the over 500 “unofficial” problem banks posted at CalculatedRisk.
So, I’m not “too” worried. They’re even still paying a dividend. But then, I don’t have all of the answers and who knows.. things could change in the next few months.
If you’re nervous, it’s understandable.. stay away from MFBP. But, that’s not how contrarian investors roll. IMO, at these prices, the downside risk is worth the upside potential. In the long-term I think it’ll pay off.
Posted 26 Dec 2009 at 1:35 pm ¶Thanks for taking the time to reply.
For someone like yourself who has a big interest in banking stocks, I highly recommend the Peter Lynch book “Beating the Street”.
During the last real estate bust in the late 80′s, Peter Lynch talked about differentiating between the good, the bad and the ugly banking stocks. Using criteria such as book value, equity-to-asset ratios and a number of other factors, he was able to draw up a list of stocks that looked unfairly beaten down.
Even if you just read his chapter on picking banking stocks, you’ll definitely make several times the ten bucks you’ve spent over the year on your picks.
Posted 27 Dec 2009 at 4:47 pm ¶According to the 10Q released today, MFBP reported earnings of $0.04 per share for the first quarter, compared to $0.15 per share reported the same quarter last year. While still profitable and more than well-capitalized, it looks like non-performing assets still continue to eat at the bottom line.
Because of this, on April 27, 2010, the Bank and the directors of the Bank signed a Memorandum of Understanding (“MOU”), which will become effective upon the execution thereof by the Commissioner of Banking of North Carolina and the Regional Director of the FDIC’s Atlanta Regional Office, the supervisory authorities.
The MOU requires the Bank to:
So, there go the dividends that I’ve been accumulating while waiting for a recovery. Can’t say that I’m not disappointed, but I’m still ahead of the game and I’ll wait to see what next quarter brings before deciding if I need to bail or not.
Posted 30 Apr 2010 at 7:36 pm ¶Trackbacks & Pingbacks 1
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