First M&F Corp, Kosciusko, MS (FMFC)

The Case of a Registration Statement That Doesn't Mean What You'd Think


If you're thinking of selling or avoiding FMFC stock because First M&F filed a Registration Statement on April 3, 2012, think again: According to bank Chairman and CEO Hugh Potts, First M&F has no intentions of selling additional shares. The bank simply renewed the March 2009 Registration Statement as required for its TARP warrants. So there's little risk of a big dilutive capital raise to anything like the 37 million registered shares, which at today's market could have brought book value down from over $10 to something under $6.

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

Prospective Buyers
Although it doesn't sound like FMFC would be open to selling, three banking heavyweights have a significant presence in its markets and would benefit from an acquisition of its branches:

BancorpSouth, Inc, Tupelo, MS (BXS)
16 local branches with $1.1B deposits (9% of total business)
Regions Financial Corp, Birmingham, AL (RF)
27 local branches with $1.3B deposits (less than 1% of total business)
Trustmark, Jackson, MS (TRMK)
15 local branches with $500M deposits (5% of total business)
Financial Snapshot
(as of 03/31/2012)

Total assets:
$1.6B
Tangible book value per share:
$9.71
NPAs to assets:
4.29%
Price to book:
52.4%
Market cap:
$49M
Dividend yield:
0.8%
Trailing 12-month return on assets:
0.32%
Trailing 12-month return on equity:
4.57%
TARP:
$17.8M*
*Converted to CDCI Preferred at 2% until 2018
The Crew
Hugh Potts Jr., Chairman and CEO
Jeffrey Lacey, President
John Copeland, Executive VP and CFO
The Skinny
- - - PLUSSES - - - - - - - - - - - - - - -
  • NPAs are down. After peaking at $87.9M (5.4% of assets), NPAs are down to $58.9M (4.5% of assets). 
  • Earnings are up. After four straight quarters of making pennies per share, FMFC earned $0.12 in Q1 2012. 
  • Equity is improving. After hitting a low of $104M, equity is up to over $111M. 
  • Insider ownership is strong. Insiders own over 24%, and there have been 12 separate insider buys in the open market this year.
  • Still room to make a buck. Keefe, Bruyette and Woods predicts FMFC will earn $0.75 per share in 2013. If they're right, investors buying FMFC stock today could make $2 or so per share.
- - - MINUSES - - - - - - - - - - - - - - -
  • Low tangible common equity. At 5.6%, FMFC's tangible common equity is a bit thin. Truly strong banks carry 8-10%.
  • Little chance of sale. Chairman Potts  — who's been building First M&F for the past 39 years — intends to continue building the bank.
    Sources

    PSB Holdings, Wausau, WI (PSBQ)

    The Case of a Good Catch on the Wisconsin River


    Fishing for community bank stock that can produce a big return? The parent company of Peoples State Bank is one of only 35 banks in the country to have increased their dividend more than 1.5% in each of the last 10 years. And of those 35, PSBQ is one of just 9 whose stock nonsensically declined over this period. I'd say this Fish is a real bargain.

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

    Prospective Buyers
    I think Peoples State Bank is swimming along so prosperously they needn't bite at any takeover offers, but any of these banking behemoths with overlapping branches should be thrilled to land such a strong franchise.

    Associated Banc-Corp, Green Bay, WI (ASBC)
    BMO Financial, Toronto, Canada (BMO)
    US Bancorp, Minneapolis, MN (USB)
    Financial Snapshot
    (as of 03/31/2012)

    Total assets:
    $607M
    Tangible book value per share:
    $32.51
    NPAs to assets:
    3.1%
    Price to book:
    82.3%
    Market cap:
    $42.4M
    Dividend yield:
    2.8%
    Trailing 12-month return on assets:
    0.86%
    Trailing 12-month return on equity:
    10.4%
    Luminaries
    William J. Fish, Chairman
    Peter W. Knitt, President and CEO
    Scott M. Cattanach, Senior VP, Secretary, Treasurer and CFO
    Gold Stars
    Thanks to the inarguably skilled leadership of Fish, Knitt, and Cattanach, PSB Holdings earns at least Five Stars in my book:
    • Ability to swim upstream. Counter to banking industry trends during the Great Recession, PSBQ's financial performance has been strong across the board — The bank was profitable in every period. Earnings for 2011 were a healthy 29% higher than their pre-recession earnings of 2007. And NPAs never exceeded a low 3.2%.
    • Stellar rise in book value. Since the start of 2007, PSB Holdings' tangible equity has grown by an astounding 56%, while most other banks' per share equity has declined. 
    • Healthy insider ownership. Insiders own over 15% of PSBQ stock. (See also my article in Seeking Alpha on the importance of Insider Ownership)
    • Room for dividend growth. Even though People's State Bank has a healthy 2.8% dividend yield, their payout ratio is still a low 22%, indicating there's plenty of room for dividend growth in the future. 
    • No TARP to hold it down. PSB Holdings never needed TARP funding.
    Sources