Consumers Bancorp, Minerva, OH (CBKM)

A Third Case of Book-ish and 10x


If you follow Timyan Bank Alert closely, you know I'm on a roll with my last few community bank stock reviews.

Consumers National Bank is another well-run bank where you can buy shares at book value, 10x earnings, or both, and reasonably anticipate doubling your money in three or four years.

By 2024, CBKM should have a book value near $28, be earning $2.50 per share, and supporting a stock price in the low $30s.

Disclosure: As of this posting, I own shares of CBKM and may subsequently either dispose of them or purchase more.


Prospective Buyers

Consumers National Bank has booked dominant share of the deposit market in eleven towns largely uncovered by these three neighboring banks.

Farmers National Banc, Canfield, OH (FMNB)
F.N.B Corp, Pittsburgh, PA (FNB)
Northwest Bancshares, Warren, PA (NWBI)

Financial Snapshot
as of 09/30/2019

Total assets:
$565M
Tangible book value per share:   
$19.30
NPAs to assets:
0.16%
Price to book:
97.9%
Market cap:
$51.9M
Dividend yield:
2.86%
Trailing 12-month ROA:
1.01%
Trailing 12-month ROE:
11.1%

The Crew

Laurie L. McClellan, Chairman
Ralph Lober II, President and CEO
James V. Hanna, Former Director, largest shareholder

The Skinny

I love America's community banks — old and new, big and small, urban and rural. I love the stories of their foundings and failings, the scoundrels and the luminaries, the communities they serve. And I love the opportunity community banks continue to spell for all of their stakeholders.

Consumers National Bank was founded in Minerva, Ohio in 1965 by the fathers of two of today's leading characters, Laurie McClellan and James Hanna. Minerva is on the edge of the Utica Shale drilling area where manufacturers Willard and Isaac Pennock patented the United States’ first steel railroad car in the nineteenth century.

From a bank stocks investment standpoint, however, I see only four particularly noteworthy characteristics of Consumers Bancorp:
  1. Credit underwriting at Consumers National Bank is so good that NPAs never even got to 2% during the Great Recession. This bank has good operators.
  2. Consumers has a low 85 bps cost of deposits — 42% of its deposits are transaction accounts.
  3. The bank holds dominant marketshare in a larger than typical number of towns. Eleven of Consumers Bancorp's soon-to-be 18 branches are the leading bank in town. 
  4. CBKM is cheap. The average bank of this size trades at 125% of book and 12x earnings, where Consumers Bancorp is trading at less than book and just 10x earnings.
One recent episode in the CBKM story gives me pause:

Consumers Bancorp has agreed to pay 129% of book value to acquire Peoples National Bank of Mount Pleasant. Peoples is the only bank in three tiny towns, but why pay a premium for someone else’s bank when you can buy back shares in your own at a discount? Especially, when your shareholders who paid $15.25 for new shares in 2013 have seen very little return.

I'm hoping the next chapter reveals that Consumers Bancorp's acquisition of Peoples National Bank was part of a strategic plan to build the bank to a level more attractive to acquisitive suitors.

Sources

  • Confidential interviews with shareholders and analysts

Oxford Bank Corp, Oxford, MI (OXBC)

Another Case of Book-ish and 10x


If you read my October review of Central Federal Corp, you heard that I've been seeing a number of well-run banks where investors can buy shares at book value, 10x earnings, or both, and reasonably anticipate doubling their money in three or four years.

Oxford Bank Corp is just one of these. It hasn't been particularly well-run historically, but the side story of its top shareholders has me excited for the next chapter.

In three years, I see OXBC's book value approaching $30 per share, earnings $3.50, and trading price $40.


Disclosure: As of this posting, I own shares of OXBC and may subsequently either dispose of them or purchase more.


Prospective Buyers

I can name eight banks that would find Oxford Bank's leading market share in several Michigan cities appealing. Here are the three I believe can most afford to book a deal.

Independent Bank Corp, Grand Rapids, MI (IBCP)
Horizon Bancorp, Michigan City, IN (HBNC)
Waterford Bancorp, Toledo, OH (private)

Financial Snapshot
as of 06/30/2019

Total assets:
$461M
Tangible book value per share:   
$18.91
NPAs to assets:
0.50%
Price to book:
1.08%
Market cap:
$47.2M
Dividend yield:
0%
Trailing 12-month ROA:
0.96%
Trailing 12-month ROE:
10.69%

The Crew

Karen Mersino, Chairman
David P. Lamb, President and CEO
Richard K. Thompson, Director, largest shareholder

The Skinny

There are a few scoundrels in the Oxford Bank Corp story, but Director Richard Thompson's history in bank stocks investing and governance gives me hope for a happy ending.

The Oxford Bank Corp Story

In recent chapters, OXBC insiders have crossed some lines.

December 2014 - Oxford Bank Corp is accused of self-dealing after selling shares mostly to its own directors at a depressed price of $8 per share when OXBC book value per share was $18. Chairman Mersino alone bought a quarter of the shares sold.

December 2015 - The bank expanded its self-dealing sale of OXBC stock to include friends, again at the depressed price of $8 per share, again excluding other shareholders.

March 2018 - Oxford entered into a Cease and Desist Order for BSA violations. The Order stated that Oxford Bank Corp was to immediately notify OXBC shareholders. The bank did not. Clearly, its board has little regard for the law.

June 2019 - The bank entered a Consent Order for violation of Consumer Protection and Compliance, which again required OXBC to notify shareholders. In the bank's August quarterly earnings press release, which typically includes management's commentary and would have been the right and expected place and time for this notification, there is an oddly blank page.

To date, Oxford Bank Corp Management has ignored all inquiries from me and other OXBC shareholders about these matters.

In the next chapter, OXBC shareholders should put the heat on Oxford's Board. Technically, Oxford Bank Corp has another chance to notify shareholders of its Consumer Protection and Compliance violations. Let's see if they tell us in their "notice or proxy statement preceding the Bank's next shareholder meeting" (scheduled for May 2020), as the Consent Order requires.

The Thompson - Clemente Side Story

The tale of OXBC's two largest shareholders of gives me hope for the future of the stock.

In 2015, Richard Thompson was one of the lucky friends invited to buy OXBC. He bought 201,000 shares in that $8/share deal, took a board seat, and picked up another another 118,000 shares in the open market. Today, Thompson has a 14% stake in OXBC and is the bank's largest shareholder. At current OXBC trading levels, his stake is worth $6.5M.

Thompson and OXBC's second largest shareholder, Robert Clemente, have been governing businesses together for over 25 years. In 1993, 26-year old Thompson served on the board of Secom, where Clemente was Chairman and Thompson's father was the largest shareholder. Together, Thompson and Clemente own 25% of OXBC. (The next largest insider, Chairman Mersino, owns a mere 2%).

Thankfully, OXBC is neither the first nor only bank stock in the pair's portfolio. Thompson and Clemente also own 18% of First National Bank in nearby Howell (FNHM), where Clemente has a board seat. The two also have a combined 39% stake in nearby Clarkston Financial Corporation (CKFC), on whose board Thompson serves. The pair's involvement with Clarkston pre-dates their relationship with OXBC by at least three years.

This past June, Thompson and his fellow Directors at Clarkston, agreed to sell their bank to Waterford Bancorp for 189% of book value. That merger is in progress. Applying the same 189% valuation to Oxford Bank Corp would yield a sale price of $35.70 per share, increasing the value of Thompson’s stake in OXBC to $11.4M.

Clearly, OXBC's largest shareholders are professional businessmen, directors, and investors with a thorough understanding of their area banking marketplace. I believe it safe to assume they are profit motivated advocates of good governance. In the final chapter, they will be the heroes of the Oxford Bank Story.


Sources

Central Federal Corp, Worthington, OH (CFBK)

A Case of Book-ish and 10x


This is a fun time to be a bank stock investor! So many really nice banks are trading at compelling values that it’s hard to choose which one to feature first.

For example, I'm seeing a number of well-run banks where you can buy shares at book value, 10x earnings, or both, and reasonably anticipate doubling your money in three or four years.

CFBank is just one of these. CFBK is trading cheaply at 7.8x rapidly-growing earnings. In three years, earnings could be $2.50, book value could be $16, and CFBK could trade at $24.

It's smart to hold a few low-stress stocks like this that just compound earnings and don't require babysitting, no?


Disclosure: As of this posting, I own shares of CFBK and may subsequently either dispose of them or purchase more.


Prospective Buyers

CFBank's leading market share in four towns would be especially attractive for these acquisitive neighbors.

Farmers National Banc Corp, Canfield, OH (FMNB)
LCNB Corp, Lebanon, OH (LCNB)
Peoples Bancorp, Marietta, OH (PEBO)

Financial Snapshot
as of 06/30/2019

Total assets:
$721M
Tangible book value per share:   
$11.39
NPAs to assets:
0.75%
Price to book:
1.07%
Market cap:
$54.7M
Dividend yield:
0%
Trailing 12-month ROA:
1.0%
Trailing 12-month ROE:
13.9%

The Crew

Robert E. Hoeweler, Chairman
Timothy T. O'Dell, President and CEO
Edward W. Cochran, Director, largest shareholder

The Skinny

These four characteristics inform my assessment that Central Federal Corp is well run and in a good position to grow:

1. Location, location! CFBank's branches are located in Ohio's top four metropolitan areas: Akron, Cincinnati, Cleveland, and Columbus.

2. Sizable branches. Between them, CFBank's Fairlawn and Worthington branches hold over $500 million in deposits. On average, deposits in the bank's other four branches exceed $37 million. (It takes about $15 million in deposits for a bank branch to break even.)

3. Effective CEO. Before Tim O'Dell arrived on the scene, CFBank was a sh*tty little thrift. O'Dell attracted good lenders, reduced problem loans, and exponentially increased both the size and profitability of the bank.

4. Invested Board. Collectively, the Central Federal Corp board owns 19% of CFBK stock, and every director is invested (which isn't always the case).

Sources