Consumers Bancorp, Minerva, OH (CBKM)

A Third Case of Book-ish and 10x


If you follow Timyan Bank Alert closely, you know I'm on a roll with my last few community bank stock reviews.

Consumers National Bank is another well-run bank where you can buy shares at book value, 10x earnings, or both, and reasonably anticipate doubling your money in three or four years.

By 2024, CBKM should have a book value near $28, be earning $2.50 per share, and supporting a stock price in the low $30s.
Disclosure: As of this posting, I own shares of CBKM and may subsequently either dispose of them or purchase more.


Prospective Buyers
Consumers National Bank has booked dominant share of the deposit market in eleven towns largely uncovered by these three neighboring banks.

Farmers National Banc, Canfield, OH (FMNB)
F.N.B Corp, Pittsburgh, PA (FNB)
Northwest Bancshares, Warren, PA (NWBI)

Financial Snapshot
†as of 09/30/2019
Total assets:
$565M†
Tangible book value per share:   
$19.30†
NPAs to assets:
0.16%†
Price to book:
97.9%
Market cap:
$51.9M
Dividend yield:
2.86%
Trailing 12-month ROA:
1.01%†
Trailing 12-month ROE:
11.1%†

The Crew
Laurie L. McClellan, Chairman
Ralph Lober II, President and CEO
James V. Hanna, Former Director, largest shareholder

The Skinny
I love America's community banks — old and new, big and small, urban and rural. I love the stories of their foundings and failings, the scoundrels and the luminaries, the communities they serve. And I love the opportunity community banks continue to spell for all of their stakeholders.

Consumers National Bank was founded in Minerva, Ohio in 1965 by the fathers of two of today's leading characters, Laurie McClellan and James Hanna. Minerva is on the edge of the Utica Shale drilling area where manufacturers Willard and Isaac Pennock patented the United States’ first steel railroad car in the nineteenth century.

From a bank stocks investment standpoint, however, I see only four particularly noteworthy characteristics of Consumers Bancorp:
  1. Credit underwriting at Consumers National Bank is so good that NPAs never even got to 2% during the Great Recession. This bank has good operators.
  2. Consumers has a low 85 bps cost of deposits — 42% of its deposits are transaction accounts.
  3. The bank holds dominant marketshare in a larger than typical number of towns. Eleven of Consumers Bancorp's soon-to-be 18 branches are the leading bank in town. 
  4. CBKM is cheap. The average bank of this size trades at 125% of book and 12x earnings, where Consumers Bancorp is trading at less than book and just 10x earnings.
One recent episode in the CBKM story gives me pause:

Consumers Bancorp has agreed to pay 129% of book value to acquire Peoples National Bank of Mount Pleasant. Peoples is the only bank in three tiny towns, but why pay a premium for someone else’s bank when you can buy back shares in your own at a discount? Especially, when your shareholders who paid $15.25 for new shares in 2013 have seen very little return.

I'm hoping the next chapter reveals that Consumers Bancorp's acquisition of Peoples National Bank was part of a strategic plan to build the bank to a level more attractive to acquisitive suitors.

Sources
  • Confidential interviews with shareholders and analysts
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