UPDATE: CNA Financial Corp, Latrobe, PA (CNAF)

Three years after my November 2014 Timyan Bank Alert review of CNAF, the stock is still ripe for investors cherry picking high dividends.

CNAF is still cheap — priced roughly the same as in 2014, whereas the BKX index is up 47%.

Today, though, I'm less impressed with Commercial Bank & Trust's Management, which is missing opportunities to cultivate value and is putting CNAF at risk of languishing around book value for another three years.

More responsible caretakers of the stock would reduce the bank's bond market bet, and use excess capital to repurchase shares. CNAF could then reach $30 per share and pay increased dividends.


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


Prospective Buyers

As a unionized bank, Commercial Bank & Trust of PA is highly unlikely to sell in the foreseeable future, but that doesn't mean these local players wouldn't find it to be sweet pickings.

First Commonwealth, Indiana, PA (FCF)
F.N.B Corp, Pittsburgh, PA (FNB)
S&T Bancorp, Indiana, PA (STBA)

Financial Snapshot
as of 09/30/2017

Total assets:
$429M
Tangible book value per share:
$20.70
NPAs to assets:
0.08%
Price to book:
106%
Market cap:
$62.8M
Dividend yield:
4.7%
Trailing 12-month ROA:
1.04%
Trailing 12-month ROE:
7.51%

The Crew

George V. Welty, Chairman
Gregg E. Hunter, Vice Chairman, President and CEO
Thomas D. Watters, Executive VP and CFO

The Skinny

Sweet Notes
I find a lot of things sweet about this stock pick:
  • Insiders own 25% of CNAF 
  • CEO Hunter is CNAF's largest holder with 9.9%
  • CNAF offers a nice safe dividend yielding 4.7%
  • The stock is cheap to book at 106%
  • Commercial Bank & Trust of PA has built a wonderful deposit base and growing, albeit slowly, loan portfolio
  • 32% of the bank's deposits are low-cost transaction accounts
  • Credit quality at the bank is pristine 
  • The bulk of loans are lower-risk 1-4 family mortgages
Sour Notes
On the other hand, every cherry has a pit, and CNAF could choke on any one of these pitfalls:
  • Commercial Bank & Trust of PA is holding more securities in its portfolio than advisable, subjecting the bank to significant losses if interest rates rise
  • The bank's location in a low growth area of Pennsylvania limits opportunities for loan growth
  • Management has probably squeezed all the earnings growth we're going to see from cost cutting — there's not much more to cut
  • Management's reluctance to buy back shares may spoil CNAF's best opportunity to grow earnings per share

    Sources

    • Confidential interviews with shareholders and analysts

    First Resource Bank, Exton, PA (FRSB)

    A Case of Doing Pennsylvania Proud


    First Resource is my kind of bank. It offers good old fashioned, treat-your-customer-right community banking, and is unfollowed by any Wall Street analyst.

    If you know any Pennsylvanians who'd appreciate an opportunity to double their money by investing locally, spread the word! I'd love to see them move their Wells Fargo or Bank of America accounts to First Resource Bank, buy some FRSB stock, and come along for the ride.

    In three years, FRSB should be earning over $1.00 per share, reach book value of $10, and trade at $15.


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

    Prospective Buyers Acquiring First Resource Bank would vault any of these local competitors up to a solid third place in marketshare, behind Bank of America (BAC) and BB&T (BBT).
    Isn't that what we want — more of America's community banks competing powerfully against the Too Big To Fail banks?

    Bryn Mawr Bank Corp, Bryn Mawr, PA (BMTC)
    DNB Financial Corp, Downington, PA (DNBF)
    Fulton Financial Corpo, Lancaster, PA (FULT)

    Financial Snapshot
    09/30/2017

    Total assets:
    $249M
    Tangible book value per share:   
    $8.72
    NPAs to assets:
    2.4%
    Price to book:
    112%
    Market cap:
    $25.7M
    Dividend yield:
    0%
    Trailing 12-month ROA:
    0.7%
    Trailing 12-month ROE:
    8.5%
    TARP:
    $0M*

    *Redeemed $2.6M 09/15/2011

    Luminaries

    James Griffin, Chairman
    Glenn Marshall, President and CEO
    Lauren Ranalli, Executive VP, Secretary, and CFO

    Gold Stars

    Great People - I first learned about First Resource Bank from the proprietor of Honesdale's Hotel Wayne, who is also a top-notch bank investor. He introduced me to Glenn Marshall, who started the bank in 2004, built it from nothing, and manages it with transparency and integrity.

    Great Market - Both branches of First Resource Bank are in Chester County, which is one of the best banking markets in the State of Pennsylvania. It has the state's highest median household income ($86K) and benefits from both a low unemployment rate (3.4%) and proximity to Philadelphia.

    Great Banking - First Resource Bank runs lean on equity, is a low-cost provider, and consistently keeps expenses close to 2.5% of assets. I also appreciate that the board and management are heavily invested in FRSB, owning nearly 25% of the stock.

    Great Opportunity - FRSB has lots of room to grow. Within five miles of the bank's two branches lie $5B in deposits. In the wake of the mergers of National Penn Bank (NPBC) and Susquehanna Bank (SUSQ) into BB&T (BBT), First Resource has an opportunity to pick up talent and customers, as well.


    Sources

    • Confidential interviews with management and shareholders

    UPDATE: Northeast Community Bancorp, White Plains, NY (NECB)

    It's time Management at Northeast Community Bancorp stop hoarding the company's shares.

    Since my August 2012 review, NECB has managed to accrue some value and bank operations have improved upon Jose Collazo's ascendance in leadership.

    Still, Management has failed to feed the bank's shareholders a square meal now for over 11 years, even though they could easily double NECB's value just by converting the rest of the stock to full public ownership.

    As I explain below, even if they don't, NECB is too cheap to ignore.


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


    Prospective Buyers

    Dime Community Bancshares, Brooklyn, NY (DCOM)
    PCSB Financial Corp, Yorktown Heights, NY (PCSB)
    Webster Financial Corp, Waterbury, CT (WBS)

    Financial Snapshot
    as of 09/30/2017

    (estimates based on Call Report)

    Total assets:
    $759M
    Tangible book value per share:   
    $9.25
    NPAs to assets:
    0.67%
    Price to book:
    108%
    Market cap:
    $122M
    Dividend yield:
    1.2%
    Trailing 12-month ROA:
    0.9%
    Trailing 12-month ROE:
    5.8%

    Mostly Scoundrels
    One Luminary

    Kenneth Martinek, Chairman and CEO
    Kenneth H. Thomas, Director
    Diane B. Cavanaugh, Director

    Jose Collazo, President and COO

    The Skinny

    Given where recent conversions trade in the market, the NECB value proposition is better than ever.

    Were NECB to fully convert at book value, minority shareholders would obtain $18.83 per share. NECB is trading at about half that value today,  right where it converted in 2006.

    Even if the bank opts not to fully convert, Northeast Community shareholders can be glad to have stayed at the table. The dinner may be late, but it won't be too shabby compared to what's available in the neighborhood.

    For example, consider another similarly-sized New York Mutual Holding Company that recently effected a partial conversion like NECB's — PDL Community Bancorp (PDLB).

    PDLB has a $275M market cap and assets about the same as NECB's at $813M, but were PDL to sell the rest of its shares at book value, its minority shareholders would obtain only $16.20 a share. PDLB is trading at 92% of that value today.

    Meanwhile, NECB is trading at half PDLB's market cap, while earning twice the money as PDLB.

    Sources

    • Confidential interviews with shareholders and analysts

    Enterprise Financial Services Group, Allison Park, PA (EFSG)

    A Case of an Enterprising Enterprise


    Enterprise Bank is true to its name in ways that make EFSG one of the top "feel-good" stocks in my portfolio.

    Unlike other banks I have seen, Enterprise is structured and staffed to be a true, full-service partner for the most enterprising members of its community — including startup businesses and businesses in distress, which most banks consider too risky to serve.

    I anticipate that within three years, EFSG will have a book value of $30 per share, be earning $2.25 per share, and be paying an 80 cent dividend. To me, those numbers easily support a $22.50 stock price, more than double today's $10.30.

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

    Prospective Buyers Enterprise Financial Services Group has designed a truly unique, niche business outside of the focus of the average bank, so it's hard to imagine it being very attractive to acquisitive neighbors. I don't think bigger banks would appreciate what's most valuable about it.

    Financial Snapshot
    Estimates based on 06/30/2017 Call Report and 9/2016 Annual Report

    Total assets:
    $268M
    Tangible book value per share:   
    $25.92
    NPAs to assets:
    6.7%
    Price to book:
    39%
    Market cap:
    $9.1M
    Dividend yield:
    0%
    Trailing 12-month ROA:
    0.65%
    Trailing 12-month ROE:
    7.43%
    TARP:
    $0M*

    *Redeemed $4M 08/25/2011 into $5M SBLF

    The Crew

    Charles H. Leyh, Chairman, President and CEO
    Bradley J. Ryniawec, Senior VP, Assistant Treasurer and CFO
    Douglas W. Lockard,  Vice Chairman

    The Skinny

    The main reason EFSG is at the top of my "feel good" list is this:

    Where other banks have wealth management groups to help those who already have a surplus of money to make even more, Enterprise has a business consulting practice, insurance services group, and even a real estate subsidiary to help small and struggling business customers with everything from bookkeeping and website design to property management.

    I'm more bullish on Enterprise than my friend Nate Tobik, who has also written about Enterprise. (See "Is this bank a quadruple or a zero?" for example.)

    My logic for having faith in EFSG as an investment is pretty well expressed by these excerpts from the bank's recently released 2016 Annual Report:

    "This last fiscal year has seen pretax earnings improve approximately 40% over the prior year."

    "Growth continues to occur."

    "Legal collection and OREO holding costs continue to drop."

    "[Our] plan will include resuming dividend payments"


    Sources

    • Confidential interviews with shareholders and analysts

    UPDATE: Franklin Financial Services, Chambersburg, PA (FRAF)

    I'd like to plant a new seed for this money tree.

    Since my August 2012 review, Franklin Financial has grown in value just as I had predicted.

    Although not the screaming bargain it was back then, given another three years, FRAF should trade at 150% of its estimated book value of $31 or $47 per share.

    Were Management to list FRAF on the NASDAQ, the stock would be eligible for inclusion in the Russell Index and trade more in line with its peers. (The average NASDAQ bank stock trades for 186% of book value and 21x earnings.)


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


    Prospective Buyers

    F&M Trust's low 23 bps of funding costs, #1 marketshare position in Franklin County, and #2 position in Fulton County make the bank a very attractive franchise for acquisitive neighbors like these:

    F.N.B. Corporation, Pittsburgh, PA (FNB)
    Fulton Financial Corporation, Lancaster, PA (FULT)
    Northwest Bancshares Inc., Warren, PA (NWBI)

    Financial Snapshot
    as of 03/31/2017

    Total assets:
    $1.13B
    Tangible book value per share:   
    $25.47
    NPAs to assets:
    1.6%
    Price to book:
    113.4%
    Market cap:
    $135.2M
    Dividend yield:
    3.1%
    Trailing 12-month ROA:
    0.8%
    Trailing 12-month ROE:
    7.2%

    The Crew

    G. Warren Elliott, Chairman
    Timothy G. Henry, President and CEO
    Mark R. Hollar,  Senior VP, Treasurer and CFO

    The Skinny

    If the crew at Franklin Financial Services takes me up on my suggestion to list FRAF on NASDAQ, and FRAF starts to trade in line with its peers, the stock could trade for $44 pretty quickly.

    Improvements at Franklin Financial since my 2012 review
    • Transaction accounts now make up 43% of F&M Trust's deposits, versus 29% five years ago
    • NPAs are down to 1.6% and still declining 
    • Dividend yield is pretty high at 3.1%, and now rising
    Other things to like about this deeply rooted Pennsylvania money tree
    • The bank's markets have grown, and its share of those markets has, too
    • Merger activity has lessened the competition making FRAF more valuable
    • FRAF does not get the credit it deserves for its solid and growing trust business, which has $725M in assets
    • Going forward I expect FRAF will consistently earn over 1% on assets and 10% on equity

    Sources

    • Confidential interviews with shareholders and analysts

    Parkway Acquisition Corp, Floyd, VA (PKKW)

    A Case of Better Than Before


    If you're looking for a relatively safe place to park a few dollars, PKKW might be it.

    Parkway Acquisition Corp and its wholly owned subsidiary Skyline National Bank are the product of a 2016 merger of Grayson Bankshares, Inc. (GSON), Cardinal Bankshares Corporation (CDBK), and their respective subsidiaries, Grayson National Bank and the Bank of Floyd.

    I would have preferred to see Grayson and Cardinal sell rather than merge, but now that they've kicked the scoundrels* to the curb, I'm content to focus on the blue sky ahead.

    Management predicts PKKW will earn $1.01 per share in 2018. If they're right, book value should grow to $12.50 and the stock could trade at $14, providing investors who buy PKKW today a decent 37% return.

    *See my April 2012 review of Cardinal Bankshares for the backstory.


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


    Prospective Buyers

    Skyline National Bank may be landlocked in the mountains and short on options for organic growth, but it's holding upwards of 50% of the deposits in five Virginia towns.

    First Citizens BancShares, Raleigh, NC (FCNCA)
    National Bankshares, Blacksburg, VA (NKSH)
    Union Bankshares, Richmond, VA (UBSH)

    Financial Snapshot
    as of 03/31/2017

    Total assets:
    $558M
    Tangible book value per share:   
    $10.72
    NPAs to assets:
    2.1%
    Price to book:
    91.3%
    Market cap:
    $51.2M
    Dividend yield:
    1.6%
    Trailing 12-month ROA:
    0.49%
    Trailing 12-month ROE:
    5.0%

    The Crew

    Thomas M. Jackson, Jr., Chairman
    J. Allan Funk, President and CEO
    Blake Edwards, Jr.,  Executive VP and CFO

    The Skinny

    Although I'm bullish on PKKW in general, I don't expect miracles from this new combination.
    • Floyd County is a low-growth market that has struggled to attract business, which is why 7 out of the 16 branches Parkway now owns are smaller today than they were five years ago.
    • With 188 employees, Skyline National Bank has less than $3M in assets per employee. Neighboring National Bankshares operates with $6.2M in assets per employee.
    • Five Directors from Cardinal's board are now on Parkway's board, including third generation Director Dr. Condruff, under whose watch Cardinal's Bank of Floyd was grossly mismanaged.
      Why I'm not worried the sky's going to fall for investors:
      • At 92% of book value, PKKW is cheap, and there aren't many $500M banks with relatively clean asset quality left that are trading this low.
      • Skyline National Bank is the only bank in four towns and enjoys over 50% market share in two other towns.
      • In its recent investor presentation, Parkway's Management team overtly acknowledges it must perform or forfeit control of the bank.

        Sources

        • Confidential interviews with shareholders and analysts

        UPDATE: Embassy Bancorp, Bethlehem, PA (EMYB)

        Clearly, the bankers in charge at Embassy still know how to pack a punch. As I predicted in my 2013 review, CEO David Lobach and his colleagues have succeeded in doubling the bank's value. In fact, they've done better than I predicted, accomplishing this growth "organically" versus sale of the bank. EMYB is up 120%, and assets are up 50%.

        I see no reason why this team can't grow EMYB another 50% over the next four years. If I'm right, Embassy's stock could trade for $30 on its own by 2021, giving investors another chance to double their money.

        Lobach is 67 and has certainly earned the right to cash in on his 500% change in control provision any time he likes. I'd be just as happy to see him keep running at full steam ahead for another four years, first. Either way, he's done right by the bank, its customers, its shareholders, and his own family.


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



        Prospective Buyers

        The M&A scene in Embassy's back yard is so hot that two of the institutions I had listed as prospective buyers in May 2013 have since been acquired, themselves — First Niagara Financial Group, Buffalo, NY (FNFG) and National Penn Bancshares, Boyertown, PA (NPBC).

        Fulton Financial Corp, Lancaster, PA (FULT)
        Provident Financial Services, Iselin, NJ (PFS)

        Financial Snapshot
        as of 03/31/2017
        Total assets:$963M
        Tangible book value per share:$10.15
        NPAs to assets:0.66%
        Price to book:145%
        Market cap:$110M
        Dividend yield:0.9%
        Trailing 12-month return on assets:0.83%
        Trailing 12-month return on equity:10%

        Luminaries

        David Lobach, Jr, Chairman, President, CEO
        Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO
        James R. Bartholomew, Executive VP

        Gold Stars

        I still love how efficient and committed Embassy is! In some ways the bank is operating even more efficiently now than it was four years ago, especially considering that its peer group is now comprised of only the strongest players.
          Employees per branch.
          • In 2013, Embassy Bank had just 70 employees across 7 branches and was operating 30% to 90% more efficiently than its peers.
          • Today, Embassy has just 83 employees across 8 branches, and is now operating 30% to 100% more efficiently than its peers.
          Assets per employee.
          • In 2013, Embassy Bank had whopping $9.2M in assets per employee and was operating 50% to 100% more efficiently than its peers.
          • Today, Embassy has $11.6M in assets per employee and is still operating 30% to 60% more efficiently than its peers.
          Insider ownership.
          • In 2013, insiders owned an impressive 32% of EMYB stock worth $15M and Embassy Bank managers and directors were 3x to 20x as invested in their bank's success as their peers in other banks.
          • Today, insiders own 27% of EMYB stock worth $30M, and Embassy managers and directors are still 3x to 4x as invested as their industry peers.

          Sources

          • Confidential interviews with shareholders and analysts

          Delmar Bancorp, Salisbury, MD (DBCP)

          A Case of Bordering on a New Frontier


          DBCP is priced too low. Delmar Bancorp's performance has crossed over into new territory and the stock doesn't reflect it, yet. Other banks of similar profitability trade at 150% of book or better.

          NPAs less TDRs are 1.2%, ROE is approaching 10%, and book value has grown 22% since 2013. At this rate, book value will surpass $7 in three years, and DBCP could easily trade at $11.


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


          Prospective Buyers

          The Bank of Delmarva holds 12% of the Salisbury, MD and Seaford, DE markets, is the only bank in Delmar, MD and Dagsboro, DE, and shares territory with these three banks:

          Fulton Financial, Lancaster, PA (FULT)
          WSFS Financial, Wilmington, DE (WSFS)
          Xenith Bancshares, Richmond, VA (XBKS)

          Financial Snapshot
          as of 12/31/2016

          Total assets:
          $512M
          Tangible book value per share:
          $5.62
          NPAs to assets:
          4.4%
          Price to book:
          107.3%
          Market cap:
          $49.6M
          Dividend yield:
          1.3%
          Trailing 12-month return on assets:
          0.8%
          Trailing 12-month return on equity:
          8.6%
          TARP:$0M*
          *Redeemed $9M 1/29/2013

          The Crew

          Jeffrey F. Turner, Chairman
          Edward M. Thomas, President and CEO
          John Breda, Chief Credit Officer, successor CEO

          The Skinny

          Six ways that Delmar Bancorp is on a border*
          1. Bank of Delmarva branches literally straddle the Delaware - Maryland border
          2. Delmar Bancorp is on the border between privately held and public (DBCP doesn't trade much, and one investor — Ken Lehman — controls 41% of the shares)
          3. The company is borderline too small for brokerage firm analysts to follow it (None do)
          4. The Bank of Delmarva is about to cross a border into the prestigious top 25% of U.S. banks earning 1% on assets and 10% on equity
          5. The bank is at a management border, too, as CEO Ed Thomas retires in June and John Breda prepares to take the helm
          6. Delmar's Board is at a strategic border where the "sell or stay the course" question tends to arise
          * All of which are way better than the borderline between survival and failure on which Delmar was teetering in 2011, with a Texas ratio near 120% and NPAs well over 10% of assets.

          Sources

          • Confidential interviews with shareholders and analysts

          5-Year Anniversary Portfolio Performance Assessment

          Happy Anniversary, Timyan Bank Alert!


          It's hard to believe five years have passed since I launched the Timyan Bank Alert.  The publication serves a wide range of purposes in my life: it helps me hone my art, make money, help others make money, and connect personally with those of you who share my passion for community banks. And I really like how it establishes an historical record of the stories behind these bank stocks.

          If you had invested $100 in each stock when I reviewed it here, your $4300 investment would be worth $9159 today. If you only invested in HCBP, I apologize...


          Disclosure: As of this posting, I own shares of all the bank stocks reviewed in the Timyan Bank Alert that still exist (or the stocks of their acquiring banks) and may subsequently either dispose of them or purchase more. For full disclosure, please note, I personally own many other bank stocks that are not represented in the Timyan Bank Alert portfolio or record.


          The average running return rate for the Timyan Bank Alert portfolio so far is 113%.

          Over the past five years, I've reviewed 43 bank stocks.

          Four have undeperformed against the market. (The first two stocks I reviewed turned out to be the least auspicious.)
          • HCBP essentially lost everything when it was seized by the FDIC
          • CDBK merged into Parkway, is currently down 8%, but still looks promising to me
          • CNAF is running "flat" at 1%
          • BKUT is up an un-thrilling 7%

          Nineteen have doubled their value or better, as shown in the table below.
          • FMFC and SBFC increased 5-fold, but are now in acquiring company stock
          • CITZ and CWBC quadrupled, CITZ via acquisition and CWBC on its own
          • BHWBCPBO, and CMTB have tripled, BHWB on its own

          My "median" performer gained 89% — BBIM, which was acquired for cash.

          1st ReviewSymbolReturnPrice ThenPrice Now*
          07/09/12FMFC425%$5.05$26.50
          06/20/12SBFC423%$12.60$65.95
          05/30/12CITZ381%$5.45$26.24
          05/11/12CWBC360%$2.23$10.25
          10/04/12BHWB259%$6.75$24.25
          03/30/14CPBO237%$8.45$28.47
          08/21/14CMTB207%$7.27$22.35
          05/07/13CBIN188%$13.00$37.47
          04/12/14BBBI159%$6.38$16.50
          07/07/12PSBQ146%$25.50$62.75
          05/04/12HBNC132%$11.29$26.21
          08/08/12FRAF123%$13.60$30.35
          05/21/13EMYB111%$6.65$14.00
          09/26/16GRBS108%$11.40$23.69
          06/04/12CARE107%$8.25$17.11
          01/07/13FIBP105%$13.60$27.85
          09/23/12BXS104%$15.00$30.60
          06/24/12HFBC102%$7.07$14.26
          02/27/13LOGN100%$21.00$41.95
          06/30/13HARI94%$7.20$14.00
          07/11/14BANC93%$10.76$20.75
          12/30/14BBIM89%$49.75$93.93
          11/13/13MFGI86%$32.25$60.00
          07/03/14CABC80%$10.80$19.40
          03/02/14NCNB76%$9.25$16.25
          07/13/13NWYF73%$15.80$27.40
          06/01/15EXSR73%$84.00$145.00
          09/17/12MFNC71%$7.84$13.41
          08/26/16CCFH67%$1.05$1.75
          04/25/15SLRK54%$4.80$7.40
          09/02/15PFBX52%$9.75$14.80
          01/19/15FGBI45%$17.09$24.74
          02/06/14NWBN43%$4.02$5.75
          02/27/16SBBI41%$41.00$58.00
          01/11/17BAOB38%$3.11$4.30
          01/15/14ASRV33%$3.05$4.05
          08/30/12NECB23%$6.73$8.27
          07/03/16SRNN21%$9.80$11.85
          04/06/17BRBW14%$7.25$8.25
          05/29/14BKUT7%$4.37$4.67
          11/18/14CNAF1%$20.70$21.00
          04/30/12CDBK-8%$14.5$13.39
          04/26/12HCBP-100%$3.50$0.01

          * April 2017 price, where the stock exists, or its value in acquiring stock

          UPDATE: Merchants Financial Group, Winona, MN (MFGI)

          My assessment of MFGI hasn't changed much in the three and a half years since my first Timyan Bank Alert™ review of Merchants Financial Group (November 2013): it still looks to me like "all Merchants Bank Management needs is to be left alone to keep doing what they do."

          This community bank stock has largely performed as I had expected — the price has nearly doubled from 2013's $32.50, and stated book value has reached $55. Therefore, I'm updating my expectations: over the next three years, I anticipate that book value will approach $70, and MFGI will trade above $100.

          In other words, Merchants Financial stock is still a "winner" in my book.


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

          Prospective Buyers
          As in 2013, I'd prefer to see Merchants Bank remain independent. Strongly positioned within the footprints of these banks though, it certainly has attractive options.
          Associated Bank, Green Bay, WI (ASB)
          Bank of Montreal, Toronto, Canada (BMO)
          Bremer Financial, Saint Paul, MN (private)
          Financial Snapshot
          as of 12/31/2016
          Total assets:
          $1.6B
          Tangible book value per share:
          $46.04
          NPAs to assets:
          1.2%
          Price to book:
          108%
          Market cap:
          $162M
          Dividend yield:
          1.9%
          Trailing 12-month return on assets:
          0.9%
          Trailing 12-month return on equity:
          9.8%
          Luminaries
          Scott Biesanz, Chairman
          Greg Evans, President and CEO
          Susan M. Savat, Senior VP and CFO
          Gold Stars
          Let me count the ways I still love this bank!
          1. Excellent value. At 11.4x earnings, and 108% of book value, MFGI is still 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. The ESOP together with officers and directors still hold about 23% of the stock. and local Fastenal Founders Slaggie and Kierlin own another 16%.
          3. Conservative bankers. Thanks to the sound underwriting practices of Merchants Bank loan officers, NPAs are a low 1.2% of loans.
          Since my last review, it has also occurred to me that Merchants Financial Group has another winning card it could play:
          With its market cap of $161M, were MFGI to list on Nasdaq, it would be eligible for inclusion in the Russell 2000 Index. Given its thin trading and float, the stock could then exceed my expectations pretty fast. 
          Sources

          Brunswick Bancorp, New Brunswick, NJ (BRBW)

          A Case of Appeal to Family Interest


          There's no indication that the scoundrels at Brunswick Bancorp care about their shareholders, but maybe we can appeal to their greed.

          Given that Chairman and CEO Roman Gumina owns 27%, his mother 5.5%, and other Guminas 4.2% or more, the family has two great options for making out good without further shareholder shake down:
          1. Were the Guminas to sell the bank outright, they would increase the value of their own holdings by $10M. Outside investors would score a similar amount.
          2. Alternatively, the Gumina family could use a quarter of the bank's excess capital to buy stock back from those of us who want out, make Brunswick Bank & Trust even more of a family operation, and still increase the value of their holdings by $10M.
          In any event, if you don't own BRBW, consider yourself lucky! Even at 58% of book value, the stock only "looks" cheap.


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


          Prospective Buyers

          The $88M in deposits in Brunswick's Livingston Ave branch might be appealing to area institutions, but I doubt any buyer would be interested in the 5 out of 6 other branches struggling to manage less than $10M each.

          Amboy Bancorp, Old Bridge, NJ (private)
          Magyar Bancorp, New Brunsick, NJ (MGYR)
          Provident Financial Services, Iselin, NJ (PFS)

          Financial Snapshot
          as of 12/31/2016
          Total assets:
          $180M
          Tangible book value per share:
          $12.14
          NPAs to assets:
          6.5%
          Price to book:
          59%
          Market cap:
          $21.7M
          Dividend yield:
          0%
          Trailing 12-month return on assets:
          0.38%
          Trailing 12-month return on equity:
          1.85%

          Scoundrels

          Roman Gumina, Chairman and CEO
          Nicholas A. Frungillo, Jr., President
          Louis Foulke, CFO, Secretary and Treasurer

          Red Flags

          Ask around and you'll hear all sorts of unsettling rumors about the Gumina family — real gangster stuff, complete with death threats and people suddenly going "dark" after daring to voice their concerns. In the interest of self-preservation, I'll step around all that here.

          Performance at Brunswick Bank & Trust hasn't improved in decades. In 1989, under the-now-deceased Carmen Gumina's watch, the bank earned $1.1M. It hasn't come close since. NPAs were 10% as recently as Year End 2012, and are still high at 6.5%.

          Meanwhile, current Chairman and CEO Roman Gumina has been "rewarding" himself pretty handsomely:
          • Over the past seven years, Brunswick Bancorp has suffered a cumulative loss of $501K while Roman skimmed off $2,266,000.
          • In 2010, the bank lost $1.2M and NPAs reached 12%, but that didn't stop Roman from taking a $96K bonus on top of his $310K base pay.
          • Even as the bank started reporting income — net of $283K, $406K, and $677K in 2014, 2015, and 2016, respectively — Roman's $310K a year salary is beyond what you'd call "commensurate with performance." 
          • In spite of his high compensation and the bank's screaming need for stronger management, Gumina doesn't appear to consider his responsibilities or pay grade worthy of full-time attention.

          10 Other Entities in which Roman Gumina Owns a Controlling Interest 
          1. Aaron Road Associates
          2. Cardal Associates
          3. Cranbury Station LLC
          4. Applegarth Associates
          5. Carmine Investments
          6. Brunswick Management LLC
          7. Englishtown Realty LLC
          8. Mullica Hill Management
          9. Mantec Associates
          10. Franklinville Plaza Management Associates LLC

          Sources

          • Confidential interviews with shareholders and analysts

          UPDATE: AmeriServ Financial, Johnstown, PA (ASRV)

          Remarkably, everything I said in the intro to my January 2014 Timyan Bank Alert™ review of AmeriServ Financial is still true: AmeriServ is no "five star performer." Nor is it a "mismanaged underperformer." It is still, however, a pretty good bank that is trading below book value with not a single Wall Street analyst following it. Which makes it a great "seize the moment," no-brainer kind of buy for the enterprising investor.


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

          Prospective Buyers
          Although AmeriServ's #1 market share position in six Pennsylvania towns is attractive, its status as a unionized bank makes it unlikely another bank will seek to buy it.
          F.N.B. Corp - Pittsburgh, PA (FNB) - relocated from Hermitage
          Northwest Bancshares, Inc - Warren, PA (NWBI)
          Financial Snapshot
          as of 12/31/2016
          Total assets:
          $1.2B
          Tangible book value per share:
          $4.41
          NPAs to assets:
          0.1%
          Price to book:
          74%
          Market cap:
          $70.4M
          Dividend yield:
          1.6%
          Trailing 12-month return on assets:
          0.2%
          Trailing 12-month return on equity:
          2.3%
          TARP:
          $0*
          *Repaid $20M in 2011
          The Crew
          Craig Ford, Chairman
          Jeffrey Stopko, President and CEO (promoted from CFO)
          Michael Lynch, Senior VP, CFO, Chief Risk and Investment Officer
          The Skinny
          This is still a pretty good bank. AmeriServ has reported profits in 24 out of the last 25 quarters.

          Insiders know what an opportunity they have here. Insider ownership of ASRV remains pretty high at 8.8% and growing. There have been numerous insider buys in the open market in the past year alone, and only one sell.

          Thankfully, AmeriServ Management is also shareholder friendly, as evidenced by their recent decision to buy back up to 5% of ASRV stock in the open market.

          Investors can still make money here. ASRV is the cheapest billion dollar bank stock in the U.S. I believe that within two years, AmeriServ will be reporting quarterly earnings of 10¢ per share, book value will have hit the high $5 range, and ASRV will trading near book value. If I am right, that portends a healthy 50% gain over today's share price. 

          Sources

          • Confidential interviews with Management, shareholders and analysts

          UPDATE: HopFed Bancorp, Hopkinsville, KY (HFBC)


          Since my June 2012 Timyan Bank Alert™ review of HopFed Bancorp / Heritage Bank, book value has fallen to $12.87 per share, a 25% reduction since the economic recovery began in 2009 and most of the nation's banks have materially increased their value. NPAs still linger above 2%. HFBC's ROA and ROE are shamefully low.

          Disappointingly, there is no longer any reason to invest in HopFed unless Management sells the bank. It is too mismanaged. If you already own the stock like I do, I highly recommend letting HopFed management know you agree that the ethical thing to do is to sell the bank.


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



          Prospective Buyers

          Independence Bank, Owensboro, KY (private)
          Old National Bancorp, Evansville, IN (ONB)
          WesBanco, Inc, Wheeling, WV (WSBC)

          Financial Snapshot
          as of 12/31/2016
          Total assets:
          $891M
          Tangible book value per share:
          $12.87
          NPAs to assets:
          2%
          Price to book:
          116%
          Market cap:
          $100M
          Dividend yield:
          1.1%
          Trailing 12-month return on assets:
          0.33%
          Trailing 12-month return on equity:
          3.26%
          TARP:$0M*
          *Redeemed $18.4M 12/19/2012

          Scoundrels

          Harry Joseph Dempsey, Chairman (New!)
          John Peck, President and CEO
          Billy Duval, Senior VP, Treasurer, and CFO
          Michael L. Woolfolk, Executive VP, Secretary, and COO 

          Red Flags

          (See HFBC Performance Timeline, below)

          Sources

          • Confidential interviews with shareholders and analysts


          HFBC Performance Timeline since 2012 review in Timyan Bank Alert™

          DATE
          EVENT
          SHARE PRICE
          2014
          AUG 20
          HFBC CFO Billy Duvall sells 1147 shares for $13,704
          $12.37
          2015
          FEB 03
          HFBC pays greenmail to investor Maltese Capital. Buys back 534,943 shares at $13.50
          $13.25

          FEB 09
          HFBC Chief Credit Officer Michael Fokey buys 31 shares of HFBC stock for $412.00
          $13.30

          JUL 31
          HFBC reports a Q2 loss of 2 cents per share
          $11.66

          AUG 17
          HFBC COO Michael Woolfolk buys 79 shares for $908.50
          $11.59
          2016
          MAR 29
          HFBC revises compensation plans and decides to pay its executives’ personal income taxes
          $11.45

          JUN 01
          HFBC CFO Billy Duvall sells 1500 shares for $18,165
          $12.08

          JUL 29
          HFBC reports a 130% increase in non-accrual loans
          $11.62

          FALL
          HFBC attempts to pay greenmail to investor Stilwell Group, which would hurt all other shareholders
          $11s
          2017
          JAN 26
          HFBC issues misleading 8K, which failed to disclose the real reason its largest investor didn't meet with HFBC management. In reality, Stilwell did not refuse to meet, but merely asked for an agenda in advance, anticipating another greenmail offer to go away
          $14.00

          FEB 06
          Stilwell Group’s Megan Parisi sets the record straight about HFBC's false and misleading 8K in a letter to HFBC CEO John Peck
          $14.60