Merchants Financial Group, Winona, MN (MFGI)

A Case of Winning On One's Own in Winona


Looks to me like all Merchants Bank Management needs is to be left alone to keep doing what they do! Given the historical rate of this bank's earnings, I can see MFGI book value exceeding $50 by 2015 and the stock trading at $60. That makes today’s shares at $32.50 an irresistible bargain, and this stock a winner for me.

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

Prospective Buyers
Although I'd prefer to see Merchants Bank remain independent, the bank's impressive footprint so close to Minneapolis has got to be appealing to one of these Twin City heavyweights:
TCF Financial, Wayzata, MN (TCB)
US Bancorp, Minneapolis, MN (USB)
Wells Fargo, San Francisco, CA (WFC)
Financial Snapshot
(as of 09/30/2013)

Total assets:
$1.344B
Tangible book value per share:
$33.16
NPAs to assets:
0.94%
Price to book:
77%
Market cap:
$88.7M
Dividend yield:
2.77%
Trailing 12-month return on assets:
1.14%
Trailing 12-month return on equity:
9.9%

Luminaries
Richard L. Mahoney, President and CEO
Rodney R. Nelson, Executive VP
Susan M. Savat, Senior VP and CFO
Gold Stars
Let me count the ways I love this bank!
  1. Great value. At 7x trailing 12 month earnings, MFGI stock is exceptionally cheap, especially when you consider that the bank ranks in the top quartile of US banks in both ROA and ROE.
  2. Healthy insider ownership. Including ESOP shares, Merchants Bank insiders own over 23% of MFGI shares.
  3. Conservative bankers. Thanks to the sound underwriting practices of Merchants Bank loan officers, NPAs are a low 0.94% of loans and barely got above 4% during the worst of the Great Recession.
  4. Lagging share price. While the KBW Bank Index has risen over 38% in the past 12 months, MFGI is up only 1%.
  5. Phenomenal growth. Although Merchants Bank has been operating soundly since 1875, in recent years, it has shown tremendous growth in assets and earnings, as illustrated in the chart below.

Sources
  • Interviews with management
  • Confidential interviews with shareholders

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