Small Bank Newsletter

TEXAS UNITED BANCSHARES ( TXUI $19) is the holding company for State Bank, which provides a complete range of banking services in Central and South Texas. They have 18 full service locations located in Fayette, Lee, Waller, Atascosa, Comal, Harris, Williamson, Travis, Colorado, Washington, Gonzales, and Brazos. Their headquarters are located in La Grange. They have opened 6 of these locations just in the past 3 years and they are starting to go to the bottom line. They also just completed an $80 million merger, which should help the bottom line within a year. They are 3rd, 4th or 5th in deposit shares in the markets they serve, very nice. They just started trading on the NASDAQ National Market on August 1st 2002. The stock came out at $19 and went straight to $22. Since then, it has pulled back to the $16.5- $19.5 area. We would load up in this range. They did the offering themselves, saving wasted money, but adding volatility to the stock price. This gives us an opportunity at these levels to make money. They earned $1.60 in 2002 and we are looking for $1.85+ a share in 2003 as the above factors kick in. Their net interest margins are very strong at 5.01% and non-performing loans are low at 0.52% with reserves at 0.85%, a little light but ok. They have assets of $587 million, loans of $349 million and deposits (over $60 million at the headquarters) at $453 million at 12/31/2002. Their efficiency ratio is very high at 77%, but again, due to the above information, this leaves plenty of room for earnings growth. The 2%+ cash dividend will grow and with only 2.64 million shares out there, they should be able to fetch $32 a share within the next 2-5 years when they sell. Insiders own a lot, over 17%, and they will do the right thing. Their book value is almost $14 a share, so trading at 1.35 times book is cheap for a franchise in Texas of this size. Sometimes, Texas banks get close to 3x times book in a deal. They have over 250 employees and growing. The only negative is that they did have some sub-prime car loans in their portfolio, but this is mostly behind them with only $3-4 million in loans left and should not be a problem. Downside should be limited to the $17-$18 area.

FOLLOW UPS:

1. INTERVEST BANCSHARES (IBCA) earnings up again to $.32 in the latest quarter with many more shares outstanding WOW! Growth finally slowed a little with loans up 9% and book value up to $11.69. Buy more under $10.75 only.
2. PROVIDENT FINANCIAL GROUP (PFGI) the problem with their auto-leases is not that bad, time to get back in under $22.25. Load up for a trade or takeout if we get lucky. Worth $32 in a deal.
3. WINTON FINANCIAL CORP (WFI) earnings up to $0.31 a share in the latest quarter or 20.7%. Book val ue up to $ 9.45. Buy more under $10 .50.
4. BAR HARBOR BANKSHARES (BHB) on 4/11/2003 they won the lawsuit against them from a former employee. Keep buying under $19.
5. CAROLINA BANK HOLDINGS (CLBH) earnings for the quarter up 50% to $0.12 a share. Loans up 27%, deposits up 30% and assets up 29%. Non-performing assets did go up 0.24 basis points but