Cullman Bancorp, Cullman, AL (CULL)

A Case of a Bank Going Dark

Unless 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	Cullman Savings Bank website Q3 2024 Consolidated Balance Sheet and Income Statement August 2024 Capital IQ article William Penn Bancorporation's October 2024 Proxy William Penn Bancorporation's 2024 10-K Confidential interviews with shareholders and analysts

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.

---

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

Exchange Bank of Milledgeville, Milledgeville, GA (EXCH)

A Case of Time-Tested and True

Exchange Bank of Milledgeville is a true family bank, a true community bank, and a true opportunity for investors today.

Descendants of its founding family control 22% of EXCH shares, the current CEO is married to the founder's great granddaughter, and most of the bank's loans and deposits are local.

The opportunity is this: investors can buy EXCH today for $39 and reasonably expect it to trade at $100 or better in three years, when the bank will likely be earning $6 per share and have attained book value approaching $70.

---

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

Prospective Buyers	Exchange Bank of Milledgeville would be highly valued by these potential acquirers, but the bank is earning enough to justify remaining independent. South State Corp, Columbia, SC (SSB) State Bank Financial, Atlanta, GA (STBZ) United Community Banks, Blairsville, GA (UCBI)
Financial Snapshot †as of 12/31/2017	Total assets: $245M† Tangible book value per share: $50.05† NPAs to assets: 1.3%† Price to book: 79% Market cap: $25.2MM Dividend yield: 2.0% Trailing 12-month ROA: 0.9%† Trailing 12-month ROE: 7.1%†
The Crew	William R Allen, Chairman Henry Jackson Pope, Jr, President and CEO Roy D (Casey) Washburn III, Senior VP, COO, CFO
The Skinny	Milledgeville was Georgia’s capitol from 1802-1868. Two of the three colleges operating in Milledgeville today were founded after the capitol moved to Atlanta — Georgia Military College (1879) and Georgia College & State University (1889). Milledgeville's two biggest banks were founded shortly after — The Merchants and Farmers Bank, now Century Bank and Trust (1898), and Exchange Bank of Milledgeville (1903). Exchange Bank was founded by Otto Conn. It now holds 27% of Milledgeville’s deposits, lagging its long-time competitor Century Bank and Trust by only 6%. In 115 years there have been only eight presidents of Exchange Bank. - - - Milledgeville is still a college town, and a college town is a great place to be a bank. 7,000 students attend Central Georgia Technical College alone. Milledgeville is also a steadily growing town and its two original banks have been growing right along with it. Exchange Bank's book value per share has risen from $35.50 to $50.05 over the past four years. My prediction is that both banks will continue to grow, but since Century Bank and Trust is privately held, I can't share anything of interest for my fellow investor-readers about it. I can say that with 13% equity to assets, Exchange Bank can increase dividends and buy stock back for higher-than-past book value accretion.
Sources	Exchange Bank website Annual Reports (snail mail) Quarterly Reports to Shareholders (snail mail)  SNL Financial

FMB Equibanc, Statesboro, GA (FMBE)

A Case of Being in a Better State

Economically speaking, FMBE is in the best state it's been in since the Great Recession. Geographically speaking, Georgia is a great state to be a bank in these days. So I find it linguistically satisfying that Georgia's Farmers & Merchants Bank is in a vibrant Georgian town named Statesboro.

Of course, now I have to state my case: I see FMBE's earnings reaching 70¢ a share and book value surpassing $7 in three years, making it likely the stock will trade at $10 and deliver a healthy return for today's investor. Were FMBE to sell today, it could get $9-10.

When holding out a few years doesn't get the stock to a much better state than it can obtain today, I say management should sell.

---

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

Prospective Buyers	Farmers & Merchants Bank has more great options for a mutually lucrative M&A transaction than any community bank I have seen in quite some time. All five of these banks have holes in their branch networks FMBE would fill nicely: Bank of the Ozarks, Little Rock, AR (OZRK) Fidelity Southern, Atlanta, GA (LION) South State Corp, Columbia, SC (SSB) State Bank Financial, Atlanta, GA (STBZ) United Community Banks, Blairsville, GA (UCBI)
Financial Snapshot †as of 12/31/2017	Total assets: $190M† Tangible book value per share: $5.67† NPAs to assets: 1.0%† Price to book: 115% Market cap: $21M Dividend yield: 0% Trailing 12-month ROA: 0.6%†* Trailing 12-month ROE: 5.2%†* *Adjusted to exclude one-time Deferred Tax Asset (DTA) charge Q4 2017
The Crew	Gary Davis, Chairman Charles Ricky Nessmith, President and CEO William Brett Morgan, Bank President and CEO
The Skinny	Why I'm pleased with FMBE's current state: It presents a "heads we win, tails we win" situation. Shareholders get a much higher share price whether management sells or keeps improving operations. It's just a matter of sooner or later. The state of leadership is great. CEO Brett Morgan has presided over one of the greatest bank turnarounds of this economic cycle. He brought FMBE's NPAs down from 17% in 2011 to 1% today! The bank's marketshare is in a strong state. Farmers & Merchants Bank is the only bank in Brooklet and controls 15% of the deposits in Bulloch County—an economically vibrant area anchored by Georgia Southern University and its 30,000 students and staff. The state of the bank's deposit mix is getting better and better. 36% of FMBE's $171M are in checking accounts, 15% more than in 2012 and well above the 25% most investors are happy to see.
Sources	Farmers & Merchants Bank website December 2017 Call Report SNL Financial Confidential interviews with shareholders and analysts

Greer Bancshares, Inc, Greer, SC (GRBS)

The Case of a Greedy Grip on Greer

Grrrrrr! The guys at Greer Bancshares have me growling.

Even if they stopped their money grubbing today and all else goes well, I have trouble seeing how the market price of GRBS could reach much over $15 — not a terrible return, but also not optimal, especially considering the risks involved. In a sale, GRBS shares could garner $17, more than 40% above today's stock price.

I agree with C Don Wall, a former Director and Greer's largest shareholder: the Board has a fiduciary responsibility to loosen its grip on the bank and let shareholders sell it if they wish.

---

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

Prospective Buyers	BNC Bancorp, High Point, NC (BNCN) First Citizens BancShares, Inc, Raleigh, NC (FCNCA) United Community Banks, Inc, Blairsville, GA (UCBI)
Financial Snapshot †as of 6/30/2016	Total assets: $378M† Tangible book value per share: $10.89† NPAs to assets: 1.7%† Price to book: 105% Market cap: $28M Dividend yield: 1.7% Trailing 12-month return on assets: 0.74%† Trailing 12-month return on equity: 11.3%† TARP: $0M* *Redeemed $10M 7/23/2014
Scoundrels	Gary M. Griffin, Chairman J Richard Medlock Jr, Secretary, President, and CEO
Red Flags	The Greed. These greedy guys (and gals)... paid shareholders a paltry $248,669 in dividends over the past eight years (2007-2015) while they stuffed 8x that into their own pockets, reporting $2,007,693 in Board fees have been paying themselves 10% interest for deferred Directors compensation (right up until last year), 20x the 0.5% rate they pay customers for 1-year CDs  recently cut their deferred compensation interest rate by half, but it's still 10x the rate they pay their customers  [No wonder that a full third of Greer's directors don't even own an amount of stock equal to a year's worth of board fees!] The Grip. These same greedy guys are... misusing an outdated requirement that 70% of the Board agree to a change of control, when the norm is 50%* refusing to hand over corporate records shareholders have requested to inspect, in open defiance of their obligations under South Carolina law persisting on a self-serving path of independence at the expense of the bank's core shareholder base *Until this is changed, that aforementioned third of the Board that owns next to no GRBS stock can effectively block the interests of shareholders who own 99% of it. Other Gripes. While their hands are busy grabbing profits and maintaining their grip on the bank, these guys are dropping the ball: From 2011 to 2015 both loans and deposits declined. (Deposits have meagerly improved over the past few months.) Instead of taking in deposits and lending them out, Greer is borrowing money from the FHLB and taking on debt to invest in the bond market — a risky wager given that interest rates are at record lows. (A 2% interest rate increase could wipe out more than half of the bank's equity.) The bank's efficiency ratio increased from 69.9% in 2011 to 72.5% in 2015, in a game where the target is a healthy 60% or less. - - - - - - - - - - - - - -  My Gratitude to fellow shareholders C Don Wall, Dennis Hennett, and Paula Lawrence — who launched a proxy fight last year — for their shareholder advocacy and stand for right behavior.
Sources	Greer State Bank website Q2 2016 Quarterly Report 2014 Annual Report SNL Financial Confidential interviews with shareholders and analysts

CCF Holding Co, Jonesboro, GA (CCFH)

A Case of Southern Revival

The Heritage Bank resurrection story warms my heart. Of the 12 banks that were headquartered in Georgia's Clayton and Henry Counties in 2008, Heritage is the only one that survived the Great Recession.

The Heritage Bank franchise lost a huge percentage of its equity at the time, but clearly it did not lose faith! Since then, asset quality, growth, and scarcity value have all risen to such a glorious degree that I can see CCFH stock trading at 150% of book value within the next two years. And if the bank's board decides to sell, the stock could deliver twice book.

---

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

Prospective Buyers	Wrapping Heritage Bank into its fold would fill a real need for any one of these organizations that suffer from lack of marketshare in the area: Ameris Bancorp, Moultrie, GA (ABCB) State Bank Financial, Atlanta, GA (STBZ) United Community Banks, Inc, Blairsville, GA (UCBI)
Financial Snapshot †as of 06/30/2016	Total assets: $415M† Tangible book value per share: $1.08†* NPAs to assets: 2%† Price to book: 88%* Market cap: $37M* Dividend yield: 0% Trailing 12-month return on assets: 5.6%†** Trailing 12-month return on equity: 64.2%† *Tangible book value per share, price to book, and market cap adjusted for exercise of warrants and conversion of preferred shares. **ROE and ROA numbers are misleading due to the bank's DTA recapture.
Luminaries	David Turner, Chairman Leonard Moreland, President and CEO Katherine Zovlonsky, Senior VP and COO
Gold Stars	The Heritage Bank resurrection story in a nutshell: THEN* NOW NPAs to Loans Over 24% 3% Texas Ratio 267% 20% and falling Equity $7.7M $38M Net Loans $242M $275M Deposits $327M $362M * YE 2012, 2013
Sources	Heritage Bank website 2016 Proxy Statement 2015 Annual Report 2013 Annual Report SNL Financial Confidential interviews with shareholders and analysts