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.

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.

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.

Excerpts via M&F Bancorp, Inc. Receives $11.7 Million from TARP

President and CEO, Kim D. Saunders, said, “I believe this infusion of capital is critical because it will help M&F Bank retain a well-capitalized status, maintain stability, enhance our competitive position, and continue lending to creditworthy borrowers – all of which are essential during these unprecedented economic times. The TARP money is not a bailout for us; rather, it is a bridge that will allow us to do just what we have done now for over 100 years and should continue to do, which is providing loans to deserving borrowers, supporting business development and job creation and retention in our markets, and building on our track record of success.”

M&F Bancorp, Inc., a bank holding company headquartered in Durham, NC with assets of approximately $260 million as of March 31, 2009, is the parent company of M&F Bank. M&F Bank is a state-chartered commercial bank founded in 1907, and has operated continuously and profitably since 1908. With branch locations in Durham, Raleigh, Charlotte, Greensboro and Winston-Salem, NC, M&F Bank is one of few NC banks designated by the United States Treasury as a Community Development Financial Institution.