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