Peoples Financial Corp, Biloxi, MS (PFBX)

A Case of Sweating Bullets in Biloxi


As a humanitarian, I can't bring myself to label Chevis Swetman a "scoundrel," in spite of the pressure cooker conditions he has created for his Trust Department clients and other PFBX shareholders. Swetman is reported to have worked up an honest sweat helping people after Hurricane Katrina. And judging from the unusually high number of people he keeps on the bank's payroll, he appears to be motivated by a big heart. But as a Fiduciary, I have to ask Swetman to sell the bank.

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

Prospective Buyers
To win in Mississippi's Harrison and Hancock Counties, you gotta be able to sweat it out against Hancock Bank (HBHC). Peoples' branches could help any of these players stand a chance.
Bancorp South, Tupelo, MS (BXS)
First Bancshares, Hattiesburg, MS (FBMS)
Iberiabank, Lafayette, LA (IBKC)
Financial Snapshot
as of 06/30/2015

Total assets:
$680M
Tangible book value per share:
$17.99
NPAs to assets:
6.25%
Price to book:
54.1%
Market cap:
$50M
Dividend yield:
0%
Trailing 12-month return on assets:
- 1.9%
Trailing 12-month return on equity:
- 14%
The Crew
Chevis B Swetman, Chairman, President, and CEO
A Wes Fulmer, Executive VP and Chief Credit Officer
Laurie A Wood, Senior VP and CFO
The Skinny

If I'm right to infer that people are Swetman's calling, then maybe it would help to broaden his understanding of how real people are being negatively impacted by Peoples' Financial.

I'm most bothered what clients of the bank's Trust Department have experienced.
  • These people collectively own 5% of PFBX
  • In most Trust Departments, some clients are elderly, some are widowed, some are sick, and some have dependents whose futures are entirely reliant upon the entrusted investments
  • Surely, Swetman personally knows at least some of these people
Let's quantify the harm that has me sweating bullets on behalf of these folks and others:
  • Peoples' Trust Department clients have experienced PFBX stock decline by 70% since 2000
  • PFBX shareholders collectively have seen the value of their holdings drop by $110M in the same period
I really want to believe Swetman is a decent man, and I can forgive him if he changes course now to make amends. Question is, will he break into the sweat needed to do what it will take?
  • Drastically reduce redundancies in staff and other expenses
  • Close underperforming branches
  • Cut his own $354K annual compensation
  • Knock out NPAs, stubbornly holding at a high water mark of 6%
  • And, sell the bank to a more skilled operator
In short, Chevis Swetman could still leave a positive legacy here. The work to do is clear, the bank has good prospects for a sale, and at 66, he's still young enough to make a difference pursuing another calling. Let's hope he cares enough about people to do right by Peoples.
Sources

Exchange Bank, Santa Rosa, CA (EXSR)

A Case of a Bank and a Trust


Exchange Bank is a good buy you can trust to do good in more ways than one. I can't name a single other billion dollar bank in the country with ROA above 1% and ROE above 10% that still trades at a discount to book value. In the next three years, I expect EXSR will trade above its pre-Great Recession high of $153.72 per share, so I'm buying while the stock is still cheap.

And I feel darn good about it, because making money right along with me will be the Frank P. and Polly O'Meara Doyle Trust, which owns 51% of the bank and has been using its own dividends to fund thousands of scholarships for Santa Rosa Junior College students since 1950.

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

Prospective Buyers
Exchange Bank would be an appealing addition to these three institutions operating in the neighborhood, but since I'm a stand for the bank staying independent, I'll just leave it at that.
Rabobank, Netherlands (RABO, on Netherlands Exchange)
Umpqua Holdings, Portland, OR (UMPQ)
Westamerica Bancorp, San Rafael, CA (WABC)
Financial Snapshot
as of 03/31/2015

Total assets:
$1.9B
Tangible book value per share:
$96.72
NPAs to assets:
2.95%
Price to book:
86.3%
Market cap:
$143.1M
Dividend yield:
2.6%
Trailing 12-month return on assets:
1.03%
Trailing 12-month return on equity:
11.8%
TARP:
$0*
*Redeemed $43M July 26, 2012 
Luminaries
William R. Schrader, Chairman
Gary Hartwick, President and CEO
Greg Zahn, Executive VP and CFO
Gold Stars
Exchange Bank of Santa Rosa, CA has done plenty to earn the trust of its community and shareholders. In particular, it merits a nice row of Gold Stars for:

Doing its Founding Father proud. I feel like Frank and Polly Doyle are the true luminaries in the Exchange Bank story. All too often, family-owned institutions, at best, peter out over the years, or more commonly, fall victim to nepotism and malaise with succeeding generations. In stark contrast, the Doyle Family legacy is a Trust that Founding Father Manville Doyle's son Frank and daughter-in-law Polly specifically designed to keep the interests of the community and shareholders first and foremost for the life of the institution.

Doing measurable good in its community. Banks talk a lot about community service, but it'd be hard to find one that tops the good Exchange Bank does every year in its hometown. Since 1950, the Frank P. and Polly O'Meara Doyle Family Trust has used its honestly earned dividends to pay out over $80M in scholarships that have helped some 122,000 students attend Santa Rosa Junior College. In a town whose population doesn't appear to exceed 175,000, it's arguable this bank and Trust have been upskilling an entire workforce!

Doing right by its shareholders.Exchange Bank's Managers and Directors deserve special mention here as well. They guided the bank effectively through the Great Recession, have already grown book value by 67% since EXSR's 2009 low, and appear on course to deliver even greater returns — for which those of us who were left holding worthless shares in one or more of the hundreds of banks that failed in that Recession are truly grateful.
Sources

Solera National Bancorp, Lakewood, CO (SLRK)

A Case of Almost out of the Woods


Solera National has sure traveled a bumpy road since its de novo formation in 2007. Solera's shares have lost ground en route, too, dropping over half their value since the bank's initial capital raise at $10 per share.

Thankfully, new leaders in the driver's seat appear to be steering this one-branch bank along a more auspicious path, suggesting SLRK's current trading price of 71.5% of book value is wonderfully cheap. If I am correct, book value will soon exceed $7 and investors will pick up at least 60% as Solera makes the rest of its way out of the woods.

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

Prospective Buyers
Although much larger than Solera, each of these regional players has a minor presence in Jefferson County, CO compared to Solera's #6 place in this neck of the woods.
BOK Financial, Tulsa, OK (BOKF)
CoBiz Financial, Denver, CO (COBZ)
Zions Bancorp, Salt Lake City, UT (ZION)
Financial Snapshot
as of 03/31/2015

Total assets:
$144M
Tangible book value per share:
$6.86
NPAs to assets:
0.1%
Price to book:
71.5%
Market cap:
$13.2M
Dividend yield:
0%
Trailing 12-month return on assets:
0.27%
Trailing 12-month return on equity:
2.25%
TARP:
$0

The Crew
Michael D. Quagliano, Chairman
Robert Jay Fenton, President and CEO
Melissa Larkin, Senior VP, Secretary and CFO
The Skinny
As a shareholder, I'm excited to be on the Solera wagon right now, because:
  • The scoundrels are gone. After a bitter 2014 proxy fight exposed how their inflated salaries and poor performance were keeping Solera stuck in the woods, all of Solera's then incumbent directors resigned.
  • Solera's new leaders are motivated to get out of the woods, too. Unlike the prior CEO, who didn't buy a single share of SLRK, Solera's new CEO Robert Fenton owns a respectable 75,000 shares. Chairman Quagliano owns 23% of all shares outstanding — 623,970 shares I'm sure he's hoping will bear fruit.
  • Profits will naturally drive book value. No longer weighed down by excessive salaries and spending, the Solera National wagon is already picking up speed. SLRK's last quarter annualizes to 68 cents per share in earnings. 
  • Banks as clean as Solera are selling at a premium. Were Solera National to obtain the 10% deposit premium being paid today for comparable banks, Solera's shareholders would net $10.25 per share, a breezy 113% above today's price.  
Sources

First Guaranty Bancshares, Hammond, LA (FGBI)

A Case of a Great Guy Selling Himself Short


I guess it's no surprise that I like to make money, but I like to see other people make money, too! Especially people I admire as much as the Chairman of First Guaranty. So Marshall Reynolds' recent request to sell a significant portion of his FGBI stock has me grieving on both of our behalves. Why sell such a high percentage of shares at a substantial discount to mutual disadvantage of oneself and one's shareholders, when you can sell the bank and obtain more than a fair share for all?

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

Prospective Buyers
First Guaranty's 21 branches would be a perfect acquisition for Iberiabank, in particular, which has a big hole in the market where First Guaranty has a stronghold.
First NBC Bank Holding Co, New Orleans, LA (FNBC)
Hancock Holding Co, Gulfport, MS (HBHC)
Iberiabank, Lafayette, LA (IBKC)
Financial Snapshot
as of 9/30/2014

Total assets:
$1.476B
Tangible book value per share:
$14.83
NPAs to assets:
1.28%
Price to book:
118%
Market cap:
$114.8M
Dividend yield:
3.5%
Trailing 12-month return on assets:
0.77%
Trailing 12-month return on equity:
8.45%
TARP:
$0*
*Redeemed $20.7M 9/22/2011
The Crew
Marshall T. Reynolds, Chairman
Alton B. Lewis Jr., Vice Chairman, President and CEO
Eric John Dosch, Treasurer, Secretary and CFO
The Skinny
What I like
  • I like Marshall Reynolds. He's a good old fashioned, hardworking, straight out of storybooks, all American, serial entrepreneur. Who else goes from getting turned down for a business loan as a young man to owning the bank that denied it to him, and signs up to coach a high school basketball team for the first time at 74 years old?
  • I like First Guaranty Bank. It's been around for over 80 years, has never experienced any major asset quality problems, has been growing steadily since Reynolds took over in 1993, and now dominates the market in 11 Louisiana cities.
  • I like FGBI stock. It's performing in the 20th percentile of community banks as far as dividends are concerned, is priced well below what it is worth, and could easily obtain a premium in a sale.

What I don't like
  • The bank could be performing better. Loan growth at First Guaranty has badly lagged deposit growth, and the bank's loan to deposit ratio is down to 56%.
  • Reynolds is standing in his own way. If he proceeds with the secondary, he will net about $11M and hold remaining shares worth $20M. If he sells the bank instead, his shares would net nearly twice that, a pretty $60M.
  • Reynolds is standing in my way. If he proceeds with this secondary, his remaining shares and mine are apt to get stuck in the current $18-$20 price range. Were he to sell the bank instead, they would fetch something in the $30s.

What I want
  • I sure hope Reynolds cancels the secondary, which would be dilutive to shareholders, and takes steps to sell the bank, instead, like he did so well with Key Centurion Bank in 1992!
Sources