Town Center Bank, New Lenox, IL (TCNB)

Illinois Clan Throws Founding Shareholders Under the Bus


If you're ever tempted to invest in a de novo bank, I really hope you'll consider the case of Town Center Bank, which sold founding shares of TCNB for $10 in 2006 only to dilute trusting shareholders by 19% six years later, mismanage the bank for another eight years, and leave its patient founders holding a stock that's down 62%. Cumulative losses are half of all the money raised in the IPO. Splat!

Based on the recent sale of Ben Franklin Financial (BFFI), a similarly situated Chicagoland bank, also run for the benefit of its management, Town Center Bank could probably sell today for $7. If the bank doesn't sell, I can't see TCNB trading above current $6 DTA-enhanced book value any time soon.


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


Prospective Buyers

I don’t even know if any of the following banks in the area of New Lenox, Illinois would care to buy TCNB and pull shareholders out from under the bus, but I know I would be better off and would gladly swap my TCNB shares for theirs.

Bank Financial, Burr Ridge, IL (BFIN)
Marquette National Corporation, Chicago, IL (MNAT)
Old Second Bancorp, Aurora, IL (OSBC)

Financial Snapshot
as of 12/31/2019

Total assets:
$106.8M
Tangible book value per share:   
$6.09
NPAs to assets:
0.2%
Price to book:
60.7%
Market cap:
$8.6M
Dividend yield:
0%
Trailing 12-month ROA:
0.2%
Trailing 12-month ROE:
2.4%

Scoundrels

Michael D. Perry, Chairman and CEO, former bus company owner
Daniel Regan, President and Chief Lending Officer
All 8 "Independent" Bank Directors* currently on the bus

*In a first for Timyan Bank Alert, I’m calling the entire clan of directors at Town Center Bank scoundrels. They loaded this bus up with absurd loss levels, parked it over their shareholders, and picked their hostages pockets. Since the bank's founding, these scoundrels have granted and re-granted themselves options to buy over 18% of TCNB at a fraction of the price they charged shareholders. 

Red Flag

Besides being a good reminder to think twice before investing in a de novo bank, Town Center Bank presents a textbook case of poor corporate governance.

I have serious issues with the drivers of this bus and how the bus is being driven.

  This isn't the only bus Perry and his clan are driving

The CEO of Town Center Bank is also CEO of 21CFS Innovative Banking, which has provided data processing technology to at least a couple of banks since he took the driver's seat there.

Coincidentally, Perry became CEO of 21CFS in 2006, the same year he participated in the founding of TCNB. Reported revenues insofar as anything can be gleaned about them seem mysteriously close to the amounts billed to Town Center Bank — $278K in 2017 and $251K in 2018.

Only in an auditor's note in Town Center Bank's annual report can you discover that some of the bank's directors are also shareholders and directors of 21CFS, but nowhere does the bank or 21CFS disclose which ones or for how much.

  Michael Perry is a reckless and self-serving driver

Town Center Bank CEO Michael Perry owned a bus company in Minnesota named Positive Connections at the time he was helping to organize TCNB. He had no other banking experience as far as shareholders could discern, but we now know he happened to be acquiring a banking tech services company at the time.

Perry proceeded to install himself as Chairman of Town Center Bank's Executive Committee, Nominating Committee, Capital Planning Committee, and Loan Committee. He also "sits on" the bank's Asset / Liability Committee.

Then, according to plan, apparently, Perry converted Town Center Bank into a profit center for his bank technology business, and cut other directors in on the action.

Town Center Bank's board can exercise no oversight of this CEO under these circumstances.

  Current and prior drivers exaggerated on their resumes 

Former Town Center Bank President Andrew Bernhardt still claims on his LinkedIn page to be not "an," but "the" Owner of Town Center Bank, which in actual reality is publicly traded.

Former Director Lino Canaria is listed in the 2006 offering prospectus as owner of Brian Keith Advertising, "the largest specialty advertising firm in the Midwest." BKA has no website and looks like a very small business to me.

In 21CFS marketing material, Perry makes a delusional claim about Town Center Bank's performance under his leadership: “through economic storms and regulatory pressures," he says, "Town Center Bank remains strong and responsive to the community needs.” Truth is, half the money the bank raised in its IPO has been squandered.

In spite of their carefully crafted resumes, this entire clan of Frankfort, Illinois bankers has only been able to attract 3% of their own town's deposits for Town Center Bank.

  They took TCNB on a joyride with total disregard for passengers

Right out of the gate, de novo Town Center Bank was leaking oil. Losses grew to over $4M a year by the end of four years.

Six years into the ride, NPAs exceeded 10%, even after the bank recorded large chargeoffs.

That's when this clan got the bright idea to cut the strike price of their options on 432,000 shares from the $10 they charged their founding investors to $3, thereby stuffing 19% of shares outstanding into their own lunch boxes.

Ten years into the ride, the clan's ill-gotten options were supposed to expire, so they extended the maturity on them another 10 years out.

Today, even in these best of times for the US economy, in a “good” quarter, Town Center Bank earns barely 0.2 % on assets and 2% on equity.

Sources

  • Confidential interviews with shareholders and analysts

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