I like CNB for Bank Rebound. Massive insider buys since summer more on Friday. They have till Friday whether they apply for TARP or not, but I think they will announce they don't need it. Either way should be boost for stock:
OVERVIEW FIG Partners, LLC 1175 Peachtree St., 100 Colony Square, Suite 2250, Atlanta, GA 30361 866-344-2657 Fax: 404-591-6004
Investors continue to ignore CNB shares as the stock slipped another 11% on Thursday 11-6. There appears to be overriding belief
that without approval of capital issuance from the U.S Treasury’s TARP program, CNB becomes slotted as a “have not” and
automatically is subject to a merger by another regional bank. The stock seems to carry no support until the TARP uncertainty has
passed.
We think CNB has superb loss capacity despite a heavy degree of nonperforming assets (NPAs) which are over 6% of loans plus
nearly another 5% of loans in past dues 30-89 days and “potential problem loans” which could be future NPAs. The fact is that
CNB has nearly $1.1 Billion in loss capacity when excess total risk-based capital, excess loan loss reserves, and pre-tax, preprovision
earnings are factored for the next year. This equates to a 66.5% loss rate on all problem loans (including classifieds).
CNB shares trade at 41% of tangible book at 9-30-08, and 45% of estimated tangible book of $6.00 by year-end 2009. While
investors are confused about the importance of TARP, we continue to feel that CNB does not need the extra capital from the U.S.
Treasury. Certainly the TARP funds would provide an added cusMake no mistake, we understand that CNB should apply for $550 million in preferred capital issuance via the U.S. Treasury’s TARP
program. And, we feel the company has a high chance of being granted this capital due to the fact that the company has taken steps
to reduce leverage, has already made healthy write-downs on existing NPAs (such as 28% on Construction NPAs or 23% when all
past dues are included), has ample liquidity and limited short-term debt due in 2009, and continues to have strong core deposits.
Investors perceive that CNB has no interest in making new loans while other regional banks are willing to lend, which leads
to the conclusion that the company is disqualified for TARP capital. We disagree with this sentiment and argue that ultimately
CNB has the same capacity to make new loans as other banks who have already been granted Treasury capital.
However, in the event that TARP is not granted to CNB, we feel the company is far from worthless for these reasons:
The company has $1.3 Billion in cash per its new 10-Q filing, which is 2.5x its market capitalization. This cash is equal to
$6.56 per share. Debt renewals are minimum at the corporate level, and FHLB borrowing capacity remains intact. We see no
reason CNB cannot rollover any debt exposures.
CNB holds $12.8 Billion of core deposits - we feel these should carry a minimum premium of at least 2%. Bank failures
across the country have limited the current value of deposits, which is why we place such a low price on CNB’s deposits. Over
time, if the company remains independent, this premium should improve to mid-single digits and later higher in our opinion.
Tangible book should fall in the next year as losses are recognized and our estimate is $6.00 per share by year-end 2009.
But, if losses become as high as 66.5% of total problem loans, this would mean that residual losses after-taxes are $500 million
or $2.50 per share (i.e., $1.1 billion less $220 million of pre-tax earnings power and $95 million in excess loan loss reserves—
see analysis below). If tangible book falls to all the way to $4.00, the stock would still be at a healthy discount of 32% of
adjusted tangible book under a heavy loss scenario on ALL problem loans and classified loans too. MORE INFO COMING
