Quarterly report was excellent

The earnings report and conference call both confirmed my analysis. This bank morphed from reckless to conservative early and is well on its way to recovery. The process hasn’t been painless for old shareholders, but the outlook is kind for those that have bought in at Corsair’s price or lower. The market was very accommodating recently when they sold me a boatload of shares at the $3.70 level.

Several confirming comments from the call:
1. They have the HIGHEST Tier 1 capital of ALL regional and money center banks, 11%.
2. SupPrime delinquency is DOWN.
3. Loan Loss Provision will decline in the 2nd half.
4.LLR is at 3% of loans after large charge-offs.
5.9% tangible equity to assets.
6. 90 day past dues are down and not as many are going to non-accrual.
7. Newest loans in the SubPrime Liquidating portfolio was made in 3/06 and they are through most of their ARM rate changes.
8. Remaining Visa stake worth 1B. They could monetize it but don’t see the need at present!!!
9. Liquidating portfolio losses will flatten , then decline in next 12 months.
10. 1.5B BOLI and no problems there.
11. Feel very good about the LLR as they have “socked away” a good figure. Enough that future provisions can be smaller.
12. All banks recapitalized so no regulator issues on needing new capital at bank level.
13.Holding company has enough cash to get to 2012 and service debt without bank dividends.
14. The only negative is that the NIM is slightly below 3% due to non-accruals.

Number 14 is where they need to make progress. They’ve established that they aren’t going to fail, now they need to show they can earn money again. Obviously, they can improve earnings by collecting bad loans and getting them back into the earning category, but theyalso need to reduce expenses. A lower provision will help, but they need to cut people and non-essential expenditures.

Until they show a sustainable earnings stream we may have a $5-6 share price. However, we could get a sustained move up as there is 25% of the float sold short. Should that happen and we see a larger number soon, I ‘m planning on selling as eps is going to be week for quite awhile and with a soon to be 2.1B shares outstanding the per share eps at modest p/e won’t justify much price appreciation until earnings really improve. I’m content to stay for the long haul unless there is a big bump. Then I’ll exit and buy back in as it resettles lower.