Timyan® Bank Alert: April 2014

A Case of Pure Michigan Surviving and Thriving

I so love these one-branch banks! And it’s particularly nice to find one that I can confidently bank on in the state of Michigan where I grew up.

It looks to me like BBBI will be a $15 stock, more than double today’s market price. If management continues to grow profits at the current rate in this environment where bank stocks in general are recovering, Bank of Birmingham could easily grow book value to $10 per share and trade at 150% of book in the next few years. If an acquirer enters the picture and pays the trending 10% deposit premium, investors can expect a similar return.

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

Prospective Buyers

With the third highest share of deposits in town, Bank of Birmingham is no doubt attractive to acquirers, although clearly it's thriving well enough under current management to remain a pure, standalone, one-branch bank.

Chemical Financial, Midland, MI (CHFC) - has an obvious hole to fill in southeastern Michigan

Old National Bancorp, Evansville, IN (ONB) - has been bulking up in MI and BBBI would expand the reach of ONB's pending United Bancorp acquisition in Ann Arbor

Talmer Bancorp, Troy, MI (TLMR) - has just one branch nearby with a mere 30% of the deposits held in the one-branch Bank of Birmingham

Financial Snapshot
(as of 03/31/2014)

Total assets:	$194M
Tangible book value per share:	$7.60
NPAs to assets:	0.1%
Price to book:	84%
Market cap:	$11.8M
Dividend yield:	0.0%
Trailing 12-month return on assets:	0.74%
Trailing 12-month return on equity:	7.5%
TARP:	$3.4M*

*Redeemed 7/29/2011

The Crew

Thomas Wagner, Chairman

Robert E. Farr, President and CEO

Thomas Dorr, CFO

The Skinny

In my experience, a bank like this in a place like this is more than likely to trade at a premium sooner or later.

There just aren't that many community banks left in the United States, like this:

Trading at a double discount. BBBI stock suffers not only from something akin to what AAII calls the Shadow Stock Discount, but from what bank analysts are calling the Michigan Discount. The stock is little known, little followed, and subject to an arguably temporary trend of undervaluing Pure Michigan performance.

Performing in top tier. Bank of Birmingham's ROE is approaching 10%, a mere 0.15% away from the average for the nation's top 200 community banks. NPAs are a miniscule 0.1%, and the bank has more than doubled both loans and deposits in the last four years.

There also aren't that many communities left in the United States quite like this:

Unemployment just 3.9%! Birmingham, Michigan boasts an unemployment rate that is half the 7.9% national average and a fraction of the rate in Detroit. Naturally, more people hiring and more people working adds up to more people looking to bank in Birmingham.

High median income of $63K. Residents of Birmingham enjoy a median income that is 21% higher than the national average. For obvious reasons, in general, banks in affluent regions like this tend to be more profitable.

Sources