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Farmers & Merchants Bank of Long Beach (FMBL)

Another financial I want to talk about is a bank called the Farmers & Merchants Bank of Long Beach. I suspect that most people have not even heard of this company. This stock trades on the OTC Bulletin Board under the symbol FMBL. It is a bank that is headquartered in California which is ground zero for the Housing downturn.

The first thing you should know about FMBL is that its trading situation gives new meaning to the word "illiquid." FMBL trades very infrequently, and with a wide spread between the bid and offer. The current market is $4,750-4800. The stock trades, as the saying goes, "by appointment."

The company has been punished and put into the doghouse by the market with the rest of the Financial Sector and has sold off from a high of $6900 a share to its current $4750. It seems many investors assume that a bank in California can't be doing well in our current environment.

FMBL has a book value of $ 4,432 as of 3/31/2008, so it sells slightly above book. Although there may be downside as illiquid and family controlled public companies are typically discounted by the market, we don't understand why a bank with such a strong balance sheet should trade at a discount.

Its capital ratios are shockingly high and far in excess of all the regulatory standards established by the government.

Equity capital to assets - 19.94%
Core capital (leverage) ratio - 20.03%
Tier 1 risk-based capital ratio - 33.15%
Total risk-based capital ratio - 34.40%

A case can be made that the bank is severely overcapitalized, and a shareholder of FMBL is in litigation currently, claiming that the bank accumulated too much of a capital surplus.

As many of its competitors suffer from the poor decisions they made during the last few years, FMBL should pick up business.

Its percent of loans noncurrent is at 1.82% as of 3/31/2008, and while this is up year over year, it is far less than its peers in California. Its excess capital also provides a safety net to absorb higher losses.

Almost 33% of its deposits are non-interest bearing, giving it a low cost of funds in any environment, but particularly one where interest rates may rise and banks are desperate for funding.

The bank is run by the Walker Family, which has a majority of the stock in various entities under its control.

I need to do a little more work on this name before taking a position, but it certainly should be on a watch list for bargains in the Financial Sector.

Here are some links if you want to read up more on the company:

OTC Profile.

First Quarter of 2008 Earnings.

Annual Financials for 2007.

This article was written by The Stock Market Prognosticator. You may email questions or comments to me at