Blue Ridge Bankshares, Richmond, VA (BRBS)

A Bank Stock Investor's Case of Follow the Leader

In any field, there are certain players who are just plain Good at Their Game.

One of those players in the Game of Community Bank Stocks Investing is a gentleman from the Keystone State named Ken Lehman.

Lehman's Game is pretty straightforward: Find a troubled bank that has good deposits and a capable management team open to a turn around and exit strategy. Buy 40% of the stock cheaply, fix the problems, and maximize value through a sale of the bank. 

Of course, most of us do not have the financial means or other wherewithals Lehman has to play like this, but we all can benefit from riding his tail wind. Over the past 20 years, this GOAT has coached 15 different banking teams from limping to Over the Finish Line.

That's why I am bullish on Blue Ridge Bankshares.

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Disclosure: As of this posting, I own shares of BRBS and may subsequently either dispose of them or purchase more.

Prospective Buyers	I suspect these two banks are most likely to acquire Blue Ridge, as its $856M in Richmond area deposits would solidify their own presence in a market they both covet. Atlantic Union Bankshares, Glen Allen, VA (AUB) TowneBank, Portsmouth, VA (TOWN)
Financial Snapshot †as of 06/30/2024	Total assets: $3.2B† Tangible book value per share:    $4.42†* NPAs to assets: 1.4%† Price to book: 64% Market cap: $207.4M Dividend yield: 0% Trailing 12-month ROA: - 1.9%† Trailing 12-month ROE: - 28%† * Adjusted for warrant conversion, BRBS tangible book value per share is currently estimated to be $3.81
Luminaries	G. William Beale, President and CEO Kenneth Lehman, Shareholder with 40% ownership stake
Gold Stars	Lehman's Leadership at Blue Ridge Bankshares began when he agreed to invest $50M in a December 2023 private placement. That gave other investors confidence, enabling Blue Ridge to raise $150M. Blue Ridge's CEO, Billy Beale, had come out of retirement to play the turnaround game here just seven months earlier. I'm bullish on Beale, because in his prior capacity as CEO of Bowling Green's Atlantic Union, AUB stock increased nearly tenfold. Some of Blue Ridge's wounds will heal naturally with time. For example, the prior CEO had invested in longer term securities, which suffered temporary losses when interest rates rose. As time passes and interest rates continue to drop, the Available For Sale Securities (AFS) / Accumulated Other Comprehensive Income (AOCI) marks against this portfolio will zero out. If Beale succeeds in helping Blue Ridge recover to even marginal profitability, its book value can grow to $4.50 in two years, enabling the company to sell for 125% of book or more. This means that investors who buy BRBS at today's $2.82 price could see its value grow to $5.50 or more in as little as two years for an exhilarating 95% return.
Sources	Blue Ridge Bank website Blue Ridge Bankshares Investor Relations website September 2024 Nasdaq article "TowneBank to Acquire Village Bank, Boost Richmond MSA Presence" Confidential interviews with shareholders and analysts

FFB Bancorp, Fresno, CA (FFBB)

A Ticket to Ride a Gravy Train

Those of you who’ve been following me for awhile may recall that a few years back I was on a tear analyzing America’s one branch banks, both here in the Timyan Bank Alert, and on Seeking Alpha.

Of the "12 Beautiful One Branch-and-Growing Community Banks" I reviewed in a 2018 Seeking Alpha Article, the institution that was Communities First Financial and Fresno First Bank back then — but is FFB Bancorp and FFB Bank now — has me reaching for my wallet.

I don't normally get excited about a bank stock that's trading at 190% of book value, but today, at 7x earnings, this stock — which was CFST then and FFBB now — is a screaming Buy in spite of having appreciated 450% over the past six years.

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Disclosure: As of this posting, I own shares of FFBB and may subsequently either dispose of them or purchase more.

Prospective Buyers	For the most part, institutions that could afford to buy FFBB would find it too dilutive to their own book value to pursue, which is fine by me, as FFB shareholders are likely better off letting the bank's Steve Miller band continue to make their music. I suspect Coastal is the only exception for which FFB would be both a strong strategic play and accretive.  Coastal Financial, Everett, WA (CCB)
Financial Snapshot †as of 06/30/2024	Total assets: $1.44B† Tangible book value per share:    $46.79† NPAs to assets: 0.17%† Price to book: 190% Market cap: $282.7M Dividend yield: 0% Trailing 12-month ROA: 2.52%† Trailing 12-month ROE: 29.6%†
Luminaries	Mark D. Saleh, Chairman Steven K. Miller, President and CEO Bhavneet Gill, Executive VP and CFO
Gold Stars	What a difference a new CEO can make! FFB's current CEO Steve Miller came on board in 2015. In the ten years before Miller's arrival on the scene — the bank had raised $22.5M and had earned a mere $2M total. In the eight years since, under Miller's skilled management: The bank has earned $125M without raising a dime of new equity capital. FFB's assets have grown from $275M to $1.4B. FFB has launched a highly profitable payment processing operation that in 2023 alone grew deposits to $228M and pulled in $14M new revenue from fees. Of all publicly traded banks in the United States, FFB has grown its tangible book value per share faster than all but two.
Sources	FFB Bank website FFB Investor Relations website Q2 2024 Investor Deck January 2018 Seeking Alpha Article "12 Beautiful One-Branch-And-Growing Community Banks" Confidential interviews with shareholders and analysts

MainStreet Bancshares, Inc, Fairfax, VA (MNSB)

Wannabe Tech Bro Tricks Investors into Funding a Tech Co

Maybe Jeff Dick is “on” to something with his vision for taking an embedded banking product to market via a subsidiary company he's funded by pilfering $18M of MainStreet's assets over the past three years.

 

From my perspective, it’s neither here nor there. Avenu.bank is a LARP. Dick’s “vision” for it does not right the wrong of risking the bank's assets on ventures that conflict with his promises to investors in the last few capital raises. 

 

For that matter, in Tech Bro lingo, Dick's blown what equates to three rounds of startup funding without bringing a Minimum Viable Product successfully to market. So even if we were willing investors in “his" tech co, we’d have to declare: Game Over! 

That's why I’ll be submitting a shareholder proposal for the 2025 Annual Meeting recommending that MainStreet's Board sell MainStreet Bancshares and Avenu.bank.

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Disclosure: As of this posting, I own shares of MNSB and may subsequently either dispose of them or purchase more.

Prospective Buyers	Atlantic Union Bankshares, Glen Allen, VA (AUB) Burke & Herbert Financial Services, Alexandria, VA (BHRB) United Bancshares, Inc, Charleston, WV (UBSI)
Financial Snapshot †as of 06/30/2024	Total assets: $2.09B† Tangible book value per share:    $23.72† NPAs to assets: 1%† Price to book: 63% Market cap: $128M Dividend yield: 2.4% Trailing 12-month ROA: 0.86%† Trailing 12-month ROE: 8%†
Scoundrels	Jeff W. Dick, Chairman and CEO Terry M. Saeger, Vice Chairman Patsy I. Rust, Founding Director Please note, as of this posting, we have no reason to believe the Avenu software, or even the idea behind it are flawed in any way.    Avenu staff appear to be competent and well-meaning professionals. Sadly, they’re employed by a reckless Bank CEO and Board instead of a true tech company where they could be awarded stock options and the opportunity to benefit from an IPO someday.
Red Flags	Promises, Promises  In 2017, as inducement to raise $18M at $16/share, Dick told prospective investors he would use the funding to grow and sell the bank in three years.  In 2018, as inducement to raise $45M more at $19/share, Dick reiterated this promise to prior and new investors. Investors in this round are losing money today.  Even if the three-year clock restarted upon the 2018 promise, Dick was beholden to sell the bank in 2021.   Opportunity Cost and Lost  In Q1 2021, MNSB was trading at $21/share and could have garnered over $30/share in a sale, based on industry M&A pricing at time.  Instead of selling as promised, which would have delivered investors an ROI of over 50%, Dick began funneling the bank's assets into a high risk tech venture.  Six years after Dick reiterated his promise to sell in three, MNSB is trading at just over $16/share —13% below the 2018 offering price.  To add insult to injury, Dick raised his $666K salary to $1,583,000 total compensation in 2023.  Comedy of Errors  Note, Dick is a decent banker. He successfully raised capital from bank investors and grew a startup bank into a valuable franchise.  Dick is not a software engineer. He’s never run a tech company. He never raised venture capital from willing and witting investors looking to build their stock in tech ventures.  Dick has spent three years and $18M to build a sandbox and allegedly contract seven prospects to "start" integration.  Dick’s sandbox is a non-performing asset.* Based on like ventures in the fintech space, it’s fair to assume it will require at least as much new money to make up for lost ground and turn a true profit.  As Chairman of the Board, Dick pursued this costly, risky endeavor without ensuring the Board had the competencies needed to manage all the new categories of risk the venture entails.  We understand, Dick is having the time of his life. See Dick smile. He’s soooo much smarter than Synapse’s Sankaet Pathak and Unit’s Itai Damti.   Opportunity Ahead?  Is Avenu.bank a promising venture? Who knows? Dick hasn’t felt the need to provide MainStree's investors a proper opportunity to vet the idea. The first we heard of it was Q4 2021 via one paragraph buried at the end of an earnings release.  Investors were shown no pitch deck explaining Avenu's business model, how the NewCo fits into the competitive marketplace precisely, what its projected funding needs and operating cost structure are, how the revenue engine really works, or when Avenu is shooting to break even in its own right.  Is Avenu en route to being America's Revolut, except via a reverse path and homegrown? A hybrid between Revolut and Chime, but for an exclusively B2B market? Something between Revolut and Unit, but with a pared down set of services and functionality? A seasoned tech investor can make some inferences, but Dick isn’t saying.  Who are Avenu’s Seven Mysterious Prospects? Dick hasn’t bothered to provide even the most generic descriptions of the customers he’s allegedly already contracted. How big are these organizations, where are they located, how much revenue is he anticipating from each one, over what period of time, and by what logic is he estimating it?  For that matter, what happened to the 26 customers Avenu supposedly had back in 2022 when Dick reported the venture had brought $67M of deposits to the bank? What happened to the deposits?  We Have Questions! However, it’s too late to ask them, and we know everything we need to know:   Dick is not the kind of Tech Bro CEO you give more money and runway, and MainStreet’s Board has proven incapable of managing the risks of his technology plays.
Sources	MainStreet Bank website April 2024 Proxy Statement Q2 2024 Earnings Release Q2 2024 Financial Highlights Q3 2022 Financial Highlights` Q3 2021 Earnings Release SEC Rule §14a-8 Denver Law Review of SEC Rule §14a-8 Confidential interviews with shareholders and analysts