Showing posts with label ASB. Show all posts
Showing posts with label ASB. Show all posts

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
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S.B.C.P. Bancorp, Cross Plains, WI (SBBI)

A Case of an SBFC Lookalike?


Way back in June 2012, I said that if I could own just one bank stock, SBFC was it. Since then SBFC shares have nearly tripled in value. (See The Case of a Juicy Bank Stock in the Peachtree State.)

Fast forward to today, I feel the same way about SBBI. If I'm right in perceiving the similarities, its book value will be above $80 in three years, SBBI will trade over $100 per share — (triple today's bargain price) — and investors will be sitting pretty.

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


Prospective Buyers
Although the State Bank of Cross Plains is unlikely to sell (and I'm more than happy to hang onto its stock), I suspect these suitors would agree it's a beauty.

Associated Banc-Corp, Green Bay, WI (ASB)
Bank of Montreal, Toronto, Canada (BMO)
Old National Bancorp, Evansville, IN (ONB)

Financial Snapshot
†as of 12/31/2015
Total assets:
$807M†
Tangible book value per share:
$59.40†
NPAs to assets:
3.3%†
Price to book:
0.55%
Market cap:
$33.7M
Dividend yield:
1.4%
Trailing 12-month return on assets:
0.76%†
Trailing 12-month return on equity:
6.3%†

Luminaries
Charles L. Saeman, Chairman and CEO
James L. Tubbs, Bank CEO and President
Mark DeBiasio, Executive VP, CFO, and Treasurer

Gold Stars
The similarities between SBFC in 2012 and SBBI today are remarkable:
  • Both trade at a big discount to book value, although SBBI's discount today is even bigger than SBFC's was then.
  • Both showed self reliance by raising needed capital through their boards, families, and friends.
  • Both have astute, capable management teams with serious skin in the game in terms of insider ownership.
  • Like SBFC then, SBBI now is largely done cleaning up asset quality, and trades at barely a third of the price it did just a few years prior.

The differences make SBBI today an even more appealing stock pick than SBFC was then:
  • SBBI has a dominant share in more towns. It's #1 in five great Wisconsin communities, whereas SBFC was dominant only in Augusta, GA.
  • SBBI trades at a lower multiple of book value than SBFC did then, making it a cheaper buy with more upside.
  • SBBI's CEO is much younger than SBFC's was at the time, which suggests less risk of turnover.

So, I can imagine making money on this stock for another 20 years!

Assuming even modest growth from here, say 7% a year, we could see SBBI's book value grow from today's $64 to $240 before Tubbs reaches retirement age.*

Presuming SBBI trades at twice book by then, again, not unreasonable for a high performer, I could be holding a stock worth $500 per share.

*His grandfather worked at the bank for 66 years. His 86-year-young dad still works at nearby Bank of Sun Prairie, and owns over 10% of SBBI. If Tubbs is a Tubbs, he'll be running the State Bank of Cross Plains for at least another 20 years.

Too far out for your investment horizon?

If SBBI keeps looking like SBFC, book value will reach $100 in just three to four years and the stock should trade at 150% of book — quadruple today's price.

Sources
  • Confidential interviews with management and shareholders
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