Cullman Bancorp, Cullman, AL (CULL)

A Case of a Bank Going Dark


Image of Boy Throwing ConfettiUnless one of my readers knows something more positive about what the leaders at Cullman Bancorp are up to that I don’t — and is willing to share it with the rest of us, I think it’s safe to say, we investors aren’t going to find the switch that needs to be flipped to power CULL back up. 
 
Cullman’s leadership is keeping investors in the dark for reason. For that reason, I declare CULL a stock to avoid if you can, and to sell if you can’t.

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


Prospective Buyers
This is neither here nor there, because Cullman Bancorp is not about to let anyone take a shot at it, but there at least four area players that would do a better job of managing and growing Cullman's assets.

Peoples Bank of Alabama, Cullman, AL (private)
SouthPoint Bancshares, Birmingham, AL (SOUB)
Traditions Bank, Cullman, AL (private)
United Community Bank, Blairsville, GA (UCB)

Financial Snapshot
†as of 09/30/2024
Total assets:
$435M†
Tangible book value per share:   
$14.69†
NPAs to assets:
0.5%†
Price to book:
0.66%
Market cap:
$61.2M
Dividend yield:
1.3%
Trailing 12-month ROA:
0.8%†
Trailing 12-month ROE:
4.8%†

Scoundrels
John A. Riley III, Chairman, President, and CEO
T'aira Ugarkovich, COO and borrower
Paul Bussman, Director for 31 years

Red Flags

Cullman Bancorp and Cullman Savings Bank have issues.
 
Compensation Issues 

Gross overcompensation of leadership teams is a major red flag in any enterprise.

CEO John Riley III runs a rinky dink bank that's performing at the bottom among its peers, but he landed on Capital IQ’s 2023 list as the third most highly compensated CEO of any publicly traded bank in the US with assets under $1B. 

In 2023, Cullman's top three executives took home $2.3M while reporting a mere $3.9M in earnings and driving the price of their stock down by 9%. For point of reference, that's nearly twice the compensation the top three executives at William Penn — a bank twice the size of Cullman – took home after increasing their stock price by 7%.

Given Cullman's recent efficiency ratios in the over 70% range, Cullman Savings Bank will not be able to improve its 5%-and-below returns on equity as too much of the bank's profit margin goes to executive salaries and board fees. 

Insider Dealing Issues
 
Insider dealing is a major red flag in any organization.

Cullman insiders are borrowing money from the bank at a fraction of the rate that they're charging their customers.

Mortgage rates nationally run around 6% for most Americans. 

In stark contrast, insiders like Cullman's COO Ugarkovich -- who borrowed $636K to finance her home — received the funds at a special Riley's Friends and Family Rate of 1.75%. CEO Riley loaned himself even more, $895K, but somewhat *respectably* charged himself the same friendly rate of 1.75%.

Capital Management Issues

This shouldn't need to be said, but capital management issues are a major red flag in any financial institution.

Smart bank management teams with excess capital like Cullman enjoys, aggressively repurchase shares when they're trading at a significant discount to book value as a way to increase value.

CULL is trading at 66% of book value today and at a discount to the $10/share price sold to investors in the IPO three years ago, yet as of the bank's last filed 10Q in March, Management had only repurchased 35,593 shares that quarter (0.4% of the shares available for repurchase).

Transparency Issues

Transparency issues are a major red flag for investors in any management team and company.

Cullman is actively pursuing the freedom to operate with as little transparency as it can legally get away with.

Until July 18, 2024, Cullman Bancorp was SEC registered as required by FDIC conversion rules. (A bank is required to be registered for 3 years after conversion.)

Since then, the bank has "gone dark." Cullman did not release the customary quarterly 2024 10-Qs investors rely upon to ascertain a bank's performance.

Going forward, CULL shareholders should understand, the bank is no longer required to disclose even simple matters such as stock ownership amongst management and directors, executive salaries and board stipends, or insider loans and interest rates.

Control Issues

As a general rule, it's wise to avoid relationships with control freaks who do everything they can to limit your knowledge, influence, and well-being.

Cullman Bancorp has aggressively and intentionally decimated what is effectively every bank stock holder's last leverage over banks abusing the privilege of shareholder capital.

Since Maryland Proxy Rules now prevail over Cullman Bancorp's operations instead of SEC Rules, Cullman Bancorp can now forever prevent shareholder proposals from being properly disclosed and voted on by fellow shareholders at the bank's Annual Meetings.

Simply put: Cullman Bancorp is not in a right relationship to its shareholders and has put itself in a position of such power over us, we’re completely at their mercy. The only sane response in such a relationship is to run.

Sources
  • Confidential interviews with shareholders and analysts
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Blue Ridge Bankshares, Richmond, VA (BRBS)

A Bank Stock Investor's Case of Follow the Leader


Image of Three Motorcyle Riders with One in the Lead
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.

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
  • Confidential interviews with shareholders and analysts
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FFB Bancorp, Fresno, CA (FFBB)

A Ticket to Ride a Gravy Train


Image of Boy Throwing Confetti
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.

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
  • Confidential interviews with shareholders and analysts
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