Bank of Utica Results for Q1 2020

In yesterday's post, we mentioned a very small bank trading at 41% of book value and a 20% earnings yield based on trailing twelve month earnings. The caveats are that half of book value is in that bank's headquarters, and it is not clear how sustainable the earnings are.

Another perpetually cheap (relative to book value) bank that we write about is the Bank of Utica. If you are not a Newsletter reader, you can check out a sample that mentioned BKUT a couple of years ago. We also posted about the 2019 annual results, and investors' reactions, back in February. One thing we missed in the Tweet roundup was this one:

$BKUTK (Bank of Utica non-voting).,. we own 5.8% of it. As of the end of Q3, had $924.58 in equity per share, and 21.72% equity to assets. NPAs & 90+pd are 2.1% of TCE+LLR. Last trade of $470.00 is 51% of book value. Crazy cheap compared to what else is out there.

— Midwestern Hedgie (@MidwestHedgie) December 11, 2018

That is a healthy amount of BKUTK for someone to own. The Q1 2020 call report is out, so we can see how much money their portfolio lost through March 31st. (Call report is embedded below.)

Total interest income was up from $7.7 million in Q1 2019 to $8.5 million this quarter. Interest expense went from $3.3 million to $3.9 million, so net interest income went from $4.4 million to $4.6 million. Total non-interest expense went from $3 million to only $2 million, which is a big drop. Digging into that further, the 2019 Schedule RI-E "explanations" showed $1.1 million of "Donations". Poor shareholders...

In Q1 2019, the bank's net income was $7.8 million. This quarter, it was negative $11 million, thanks to a $17 million unrealized loss in the portfolio. The bank's equity capital is $230 million, which is slightly lower than the $232 million where it stood a year ago.

The securities portfolio increased from $947 million to $993 million, funded by an increase in deposits. So it looks as though BKUT bought the dip in... whatever kind of securities it owns.

The non-voting BKUTK shares are offered at $370. There are 200,000 non-voting shares and 50,000 voting (BKUT) shares, so the market capitalization is $93 million at the BKUTK offered price. That is 40% of book value.

We generally like to subtract the book value of BKUT's premises and other assets, which lowers book value per share and makes the BKUTK price more like 45% of adjusted book value.

It would be an absolute no-brainer to buy back stock. They are overcapitalized and their stock is a far better investment than the debt they own. 

This type of situation (and it occurs often) is a serious philosophical puzzle for Oddball investors. What are shares in a company like this worth?

Call_Cert13397_033120 by Nate Tobik on Scribd