Mackinac Financial, Manistique, MI (MFNC)

A Case of Scalping Shareholders at the Fork in the Road


Here's one sad story I really hope doesn't repeat itself a third time, or in any other bank at a similar crossroads for that matter. The hit that Makinac's shareholders were forced to take in the bank's recent dilutive capital raise was entirely unnecessary and egregious. Bank management bought itself some cash to play with as they please without a strategic plan for putting it to good use, but only by materially injuring real people. Unconscionable.

Disclosure: As of this posting, I do not own shares of MFNC but may subsequently purchase them.
Prospective Buyers
MFNC would make a nice acquisition target for any of the following banks, but by going forward with its recent dilutive capital raise, management missed the opportunity to obtain a great price for the bank. 
Chemical Financial, Midland, MI (CHFC)
Fifth Third Bancorp, Cincinnati, OH (FITB)
Huntington Bancshares, Columbus, OH (HBAN)
Financial Snapshot
(as of 06/30/2012)

Total assets:
$524M
Tangible book value per share:
$14.43 (prior to capital raise)
NPAs to assets:
1.7%
Price to book:
50.6%
Market cap:
$40.6M
Dividend yield:
0.0%
Trailing 12-month return on assets:
1.19%
Trailing 12-month return on equity:
10.78%
TARP:
$11M*
*U.S. Government recently auctioned their TARP holdings in MFNC for approximately 96¢ on the dollar ($10.4M)
Scoundrels
Paul D. Tobias, Chairman and CEO
Kelly W. George, President
Ernie R. Krueger, CFO and Executive VP
Red Flags
THE "CRIME": MFNC under Tobias' leadership executed a rights offering that diluted shareholders and socked TBV by at least 15%.
  • Tobias did a similarly dilutive capital raise in 2004, tasted blood, apparently liked it, and raised his salary 60% from $225K to $360K
    • MFNC faced three perfectly reasonable options for proceeding in ways that would have achieved respectable results without bloodshed (see below)
    • Management disregarded the rational advice and concerns of successful, business-savvy shareholders
    • The scoundrels boast grandiose notions and vague “hopes” for acquiring a branch or bank, despite evidence that they've not done a particularly great job of running their own

    THE CROSSROADS: MFNC faced three more responsible and humane options than the dilutive capital raise it chose:
    • Carry on for a few years and try to strike some deal with new owners of TARP
    • Wait to raise money until they have an actual deal in the works and could raise it on better terms
    • Sell the bank for something close to book value like Citizens Republic Bancorp (CRBC), which had a similar credit and TARP profile and recently sold for 125% tangible book value and 90% stated book value
    Sources
    • Shareholder letters to management
    *Note MFNC hasn't posted an Annual Report more recent than 2010

    1 comment :

    1. The results are in as Macinac reported earnings for the third quarter today. Book value fell 23% to $11.14 / share. The Macinac Indians rarely scalped anyone that badly.

      ReplyDelete