First Bank of Delaware FBOD
January 31, 2011 - 8:13pm EST by
2011 2012
Price: 1.70 EPS $0.30 $0.40
Shares Out. (in M): 1,142K P/E 6.0x 4.0x
Market Cap (in $M): 20 P/FCF n/a n/a
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT n/a n/a

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Disgust for the small banking space has now morphed into complete apathy.  In 2006 it was nearly impossible to find a community bank trading at a discount to book value.  Now there seems to be plenty, but nobody cares.  If you're an investor that likes to Zig when everyone else Zags, this might be an appealing situation.  Apologies in advance, this is only suitable for small amounts of money. 

Presenting First Bank of Delaware, symbol  Last price 1.70.  Shares outstanding 11,419,000. 

For those VIC members suffering from attention deficit disorder, here are the key points as of 12-31-10:

Price to tangible book value is 43%. 

Equity to assets 20.2%. 



Loan portfolio predominantly comprised of new real estate and commercial loans, vintages mostly post financial crisis.  

NPAs/Total Assets are minimal at 1%.

For those that follow the banking space, you might agree that the valuation differences between larger regional banks and smaller community banks has become pronounced.  On average a price to book ratio of 130% and 15 times forward earnings is not that unusual for well managed regionals.  Community banks, on the other hand, are trading mostly below book and (if profitable) 7 or 8 times earnings.  Part of this, in my opinion, is a healthy liquidity discount.  For good reason, the recent experience with financials is still fresh in investor's minds, and perhaps they don't want to get stuck in a name they can't get out of. 

Also the mindset has shifted.  Two years ago the mentality was "Too big to fail."  Currently the mindset is "Too small to survive."  Regulatory costs have gone up considerably, loan demand has mostly stayed soft, and competition is still fierce.  For these reasons and a few others, the conjecture amongst small bank investors is that there will be an increase in M&A activity in 2011 and 2012.  When or if that happens (I tend to think it will) - it should lift the valuations of the entire space.

First Bank of Delaware was spun out of Republic First Bancorp (FRBK) at the beginning of 2005.  The logic for the spin out, I believe, was to allow investors to decide if they wanted to own a subprime pay day lender.  They charged excessive rates (APRs north of 400%) to people that had a history of borrowing and not paying it back.  FBOD banked the "unbanked" and they made great money doing it.  This continued for a few years, but eventually the regulatory pressure in this space resulted in FBOD exiting the bulk of their subprime consumer products.  They were essentially forced out of this business (in fact they are still operating under a related MOU) just as the economic crisis was at its worst. 

They emerged with more than 30% equity to assets, and decided that amongst the economic rubble, plain old vanilla banking looked pretty good.  The logic:  competition was in retreat, the appraised value on collateral was more conservative/realistic, and they could demand the deposit relationships from the borrowers. 

They grew a lot in 2010.  Assets as of 12/31/2009 were 140,371.  As of 12/31/10 assets are 219,153.  Here is a link to the cover page of the UBPR report, click on Balance Sheet to see their recent growth, which has been met with a collective yawn/groan by small bank investors.

The Chairman and a few Board members own slightly north of 30% of the shares.  They are fairly aggressive with stock options and salaries, but I think their significant ownership counters this.  President Alonzo Primus answers phone calls and seems to write conservative press releases. 

I once was told that there was value in their Delaware charter.  You can only export subprime rates from 3 states (Delaware, South Dakota, and Nevada) but Delaware is the preferred state, apparently.  This is nothing to hang your hat on, but might one day provide a nice bump to the total return. 

I am expecting a press release shortly for 4th qtr earnings, but their call report for 12-21-10 has recently been filed with the FDIC.   Press releases and other detailed financial information can be found at and  First Bank of Delaware does not file with the SEC.


Catalyst, if there is one, would be a convergence in valuations between larger regional banks and smaller community banks.  And/or increased M&A activity in 2011 and 2012.
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