Highlands Bankshares, Abingdon, VA (HLND)

A Case of Time's Up

My shot clock expired for Highlands Bankshares.

This team has failed to perform under the auspicious conditions of the most recent banking cycle, so I don't see them improving enough to justify remaining independent.

If Highlands Union Bank steps up its game, HLND could earn 60 cents per share, have a book value of $7, and trade at $10 in three years. If the team sells sooner, they should be able to get close to that now and spare us the wasted time.

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

Prospective Buyers	Three banks have a small presence in HLND’s markets that would grow to a meaningful size with the acquisition of Highlands Union Bank. Carter Bank & Trust, Martinsville, VA (CARE) First Citizens BancShares, Raleigh, NC (FCNCA) United Community Banks, Blairsville, GA (UCBI) Since mergers of equals are sporty now, I should add: an MOE between Highlands Bankshares and New Peoples Bankshares (NWPP) could cut costs and produce an even more attractive $1.3 billion bank earning a decent return.
Financial Snapshot †as of 12/31/2018	Total assets: $592M† Tangible book value per share:    $6.02† NPAs to assets: 2.9%† Price to book: 95.5% Market cap: $47.4M Dividend yield: 0% Trailing 12-month ROA: 0.6%† Trailing 12-month ROE: 6.6%†
The Crew	Robert W Moser Jr, Chairman Timothy K Schools, President and CEO Samuel L Neese Jr, Director, Consultant, and Former CEO
The Skinny	Highlands Union Bank has had ample time to perform. It's been nearly five years since Highlands Bankshares raised capital to shore up its balance sheet and grow. TNH Financial Fund alone put up $8.7M for that purpose, and holds a 24.4% stake. Their representative serves on the bank's board and waives his board fees. As of today, the bank's assets are down, loans and deposits have barely moved, and profitability remains inadequate. In fact, deposits in Highlands' home town of Abingdon are $30M lower than before the recap, while neighboring First Bank & Trust's have grown by $40M. Highlands Bankshares' ROE in the 6% range and ROA in the 0.6% range are simply not enough to justify giving this team a new shot clock. Typically, funds like TNH Financial are looking for a liquidity event within five years, so I have to presume I'm not alone in thinking along these lines.
Sources	Highlands Union Bank website Q3 2018 Quarterly Report May 2018 Annual Shareholders Meeting April 2018 Proxy Statement S&P Global Market Intelligence

New Peoples Bankshares, New Honaker, VA (NWPP)

A Case of Being in People's Hands

As a shareholder, I am in the hands of New Peoples Bank.

More accurately, my investment is in the hands of the people behind New Peoples, as are the investments of 4428 other people.

For myself, and on behalf of these other shareholders, I am grateful to the handful of local business people who put up their own money to turn New Peoples around since 2011, and for the modest performance improvements they had a hand in effecting.

Nonetheless, seven years later, New Peoples Bank is not profitable. It’s time for a handoff.

If the three controlling shareholders play their own hands right, they can garner as much as $3.00 per share in a sale for all of us. If they don’t, we’re all left empty-handed.

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

Prospective Buyers	Could one of these local players lend a hand? You'll enhance your own franchise by buying New Peoples Bank and cutting its bloated expenses! Carter Bank & Trust, Martinsville, VA (CARE) National Bankshares, Blacksburg, VA (NKSH) Summit Financial Group, Moorefield, WV (SMMF)
Financial Snapshot †as of 06/30/2018	Total assets: $685M† Tangible book value per share:    $2.09† NPAs to assets: 1.9%† Price to book: 91.8% Market cap: $45.9M Dividend yield: 0% Trailing 12-month ROA: 0.06%† Trailing 12-month ROE: 0.86%†
The Crew	Harold Lynn Keane, Chairman Christopher "Todd" Asbury, President and CEO John J Boczar, Executive VP, CFO, Treasurer and Secretary
The Skinny	In his last shareholder letter, New Peoples' CEO Todd Asbury professed to be on a path of accelerating the bank from Good to Great. The problem is: New Peoples' bottomline performance is not even Good, and it's on a path in the opposite direction of Great. New Peoples Bank reported modest profits in 2013 - 2017, but the bank lost money in two of the past three quarters. Moreover, Asbury has made clear, shareholders should expect no dividends until New Peoples' recovers the $10.8M in remaining losses accumulated since the bank's inception 17 years ago. The only person I  can see being able to force a hand on behalf of fellow NWPP shareholders is Richard Preservati.  Besides having a great name that in and of itself suggests an interest in preserving capital, Richard Preservati owns 12.7% of NWPP stock, is a successful businessman, and knows first hand from other investments what a fair return on a community bank stock looks like. Two years prior to investing in New Peoples, Preservati bought a significant stake in First Community Bancshares (FCBC), which has handed him a more than fair 1.2% return on assets. For his sake, my sake, and the sake of the 4427 other shareholders of NWPP, I'm hoping Preservati will lend a hand here.
Sources	New Peoples Bank website New Peoples Bankshares website 2018 Proxy Statement 2018 Form 10-K 2017 Annual Report SNL Financial Confidential interviews with shareholders and analysts

Carter Bank & Trust, Martinsville, VA (CARE)

A Case of Gray Hairs Proving Their Worth in 123 Bank Branches

I wonder how this little gem of a bank has gone so long undiscovered by investors? Only two institutions own shares in Carter Bank & Trust (and less than 1/2 of 1% at that). And no brokerage firm appears to have written anything about it, despite six fine years of earnings when the rest of the industry was mired in the Great Recession. Trading at only 62% of book value and 6.8 times earnings, CARE clearly offers investors a Worthy opportunity.

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

Prospective Buyers	CARE would present an easy in-market transaction for any of the following acquisition-hungry banks: BB&T Corporation, Winston-Salem, NC (BBT) First Citizens BancShares, Raleigh, NC (FCNCA) SunTrust Banks, Atlanta, GA (STI)
Financial Snapshot (as of 3/31/2012)	Total assets: $4.3B Tangible book value per share: $9.99 NPAs to assets: 2.5% Price to book: 82% Market cap: $216M Dividend yield: 4.9% Trailing 12-month return on assets: 0.8% Trailing 12-month return on equity: 9.5%
Luminaries	Worth Harris Carter, Jr., Founder, Chairman, and President Jane Davis, Senior VP and CFO
Gold Stars	Combined with Carter Bank & Trust's low price to book value and low price to earnings, five Key Performance Indicators (KPIs) give me tremendous confidence in the bank's ability to deliver outsized returns for investors: No annual losses during the Great Recession Strong return on assets of .8%, just shy of the Industry Gold Standard target of 1% before the Great Recession, in a current economic environment where negative returns have not been uncommon Stellar return on tangible common equity of 14.8%, versus industry trends closer to 7% Consistent growth in both deposits and core deposits Healthy and growing insider ownership, currently over 28% of the stock, a whopping 7.5M shares (Since January 1st, there have already been 14 open market purchases of stock by directors at prices ranging from $8.00 to $8.80 per share) Kudos to an experienced team for showing the banking industry how it's done. Mr. Carter, at 74, has built a bank worthy of his name, and shows no signs of slowing down. His board doesn't have a single director under the age of 70. Clearly many of nation's bankers could learn a thing or two from these graybeards.
Sources	Carter Bank & Trust filings and documents SNL Financial

Cardinal Bankshares, Floyd, VA (CDBK)

The Case of an Unmotivated Straggler in Floyd

Don't you think it's time Leon Moore got his spine back and took another shot at selling Cardinal Bankshares? I have no doubt shareholders would support selling the bank, given how far its performance has fallen behind other community banks since they voted down Moore's proposed sale in 2002 to Mountain Bank.

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

Prospective Buyers	CDBK would make a nice "fill-in" for any of these three franchises: Carter Bank & Trust, Martinsville,VA (CARE) First Citizens BancShares, Raleigh, NC (FCNCA) National Bancshares, Blacksburg,VA (NKSH)
Financial Snapshot (as of 12/31/2011)	Total assets: $266,160 Tangible book value per share: $21.51 NPAs to assets: 7.6% Price to book: 67% Market cap: $22.7M Dividend yield: 1.1% Trailing 12-month return on assets: 0.44% Trailing 12-month return on equity: 3.4%
Scoundrels	Leon Moore, Chairman Leon Moore, President Leon Moore, CEO
Red Flags	In June, 2002 Cardinal agreed to sell to Mountain Bank for $24 per share. Ten years of executive salaries and board fees later, the stock is barely half that price. Triple-threat executive Leon Moore only owns 3,086 shares directly. A sale of Cardinal at $24 per share would net Moore a mere $21,000—not even 10% of the $224,701 he pulled down in compensation last year. Rarely does one see such a brazen case of a CEO lying about the true state of affairs of a company in the Annual Report: Leon's Lie #1: The "Fortress balance sheet." Since 2007, NPL's have leapt from .69% of loans and REO to the current 15.2%. Hardly a fortress. The moat around it perhaps.   Leon's Lie #2: "Solid results" in 2011. According to the Notes to the Financial Statements, bad loans nearly doubled from $10.5M to over $19M, while the provision for the year dropped from $661K in the prior year to $592K and the allowance also dropped below $3M, one of the lowest allowances to NPAs in the entire industry. By comparison, National Bancshares (NKSH) has an allowance of over $8M versus NPL's of $5.2M. Had Cardinal provided for just half the increase in bad loans, pre-tax income would have gone from $1.1M to a loss of $3.2M Leon's Lie #3: "We don't make bad loans, but loans do occasionally go bad." An additional 7% ($8.5M) in loans going bad in one year out of only $130M hardly qualifies as an "occasional" experience. Why are Cardinal's loans suddenly going bad so fast, now that the economy is showing signs of life and other banks are recovering? Has Cardinal been hiding bad loans? Are Directors burying their heads in the sand and not admitting just how much the bank stands to lose on these loans?
Sources	Cardinal Bankshares website 2011 Cardinal Bankshares Form 10-K 2011 Annual Report 2012 Proxy Statement 2011 National Bancshares 10-K * NOTE: Although public companies usually readily post their annual reports and proxy statements on their websites, Cardinal chooses not to. If you'd like your own copy, you'll apparently need to contact J. Alan Dickerson, CFO or call 1-888-562-4130.