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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: JakeStraw who wrote (21310)	5/16/2005 9:44:30 PM
From: Spekulatius	Read Replies (2) \| Respond to of 79163

re CBH (Fool article): the article in Motley Fool raises some valid points regarding CBH. I indeed think that they are correct stating that CBH's profitability is mediocre, as measured per ROA. A steady well managed bank should operate at a ROA>1% and an efficiency ratio of <50%. However CBH is not a "Steady bank" they are rapidly growing; the deposit growth was almost 30%! CBH's business model is to gather deposits (the cheapest source if funding for S&L's) offering superior service to customers. I conclude from CBH's deposit growth that they are successfully executing this plan. The somewhat high efficiency ratio is alleviated by the fact that CBH is expanding rapidly by opening "de novo" branches, which naturally leads to upfront costs. CBH's 1.5% loss reserve is in the same ballpark than other banks like BAC despite lower loan losses so far and higher than the 1.1% reserve of SOV, which Barron touted a few weaks ago. So, my opinion is that CBH's business model works even though they are not (and probably never will be) achieving stellar return on capital. However it appears to me that they can finance 20% growth going forward, which at a current valuation is enough to entice me to a starter position.