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:
Tangible book value per share:
NPAs to assets:
Price to book:
Market cap:
Dividend yield:
Trailing 12-month return on assets:
Trailing 12-month return on equity:
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. 


  1. I actually ran across MFGI thanks to your prior article on the bank. So am happy to hear that you have revisited it. I am curious as to what the cutoff is for both ROE and ROA to make it into the top 25% of US based banks.

    In addition, have you ever looked at some of the smaller Iowa based banks, such as HBIA and IOFB? As I would be curious as to what your thoughts on them are (even though IOFB has had 2 bad quarters).

  2. Hello nervhq7! Thanks for reading and commenting. I'm happy you are a proud owner of MFGI.

    The cutoff of 25th percentile of all US Banks trading OTC currently stands at an ROA of 1.03% and an ROE of 9.77% per the screen I ran Friday on SNL. If you look at listed banks, the cutoff is 1.1% ROA and 9.95% ROE.

    I am not familiar with HBIA or IOFB, but am glad to hear about them and will go take a look. Thanks!

    Good Luck,

  3. Thanks, late to comment here. I can't find a reason to not invest in this stock (well except for committing a sizable portion of capital to purchase a chunk of a private bank. Followed the midwest bank scene for ever. Not sure if 1.2% NALs good, but def. not bad. Just seems like a no brainer to invest to me.

    I own IOFB, had a couple of big bad loans on the books and charged one of them last quarter. I think they are cleaning up the balance sheet, my only concern is profitability. Never owned Hills, owned Iowa City competitor until what became Midwest One took them out, Hills always seems over-priced to me, great market IMHO. That company just seems too content to me, don't like to merge or to be merged. Besides Ames, not sure of a good market in Iowa they could go into either....

    Thanks for MFGI post

  4. Thanks for reading and taking the time to comment Olaf. $IOFB does look like it has cleaned up nicely. You're right as well about their low profitability. On the other hand, it is still trading near book value. Management at MidWestOne has done a very good job I think.
    Good Luck!