Merchants & Marine Bancorp, Inc, Pascagoula, MS (MNMB)

A Case of an Undervalued Vessel

Merchants & Marine Bank has been sailing way under the radar and is way undervalued.

MNMB wasn't even listed until January 2015. It doesn’t look like the bank has any institutional shareholders. Its largest reported shareholder — Director Paul Moore — owns a mere 2.8%.

If M&M Bank would use its earnings and excess capital to buy back shares, the stock could easily reach book value of $80, earnings of $7, and trading value of $100 by 2022.

Alternatively, given neighboring Charter Bank’s recent sale for 140% of book value, Merchants & Marine Bancorp could and probably should sell the ship now for $80 per share.

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

Prospective Buyers	M&M Bank’s 33% marketshare in Pascagoula presents an attractive acquisition opportunity for these better performing peers. First Bancshares, Hattisburg, MS (FBMS) Home BancShares, Conway, AR (HOMB) Bancorp South Bank, Tupelo, MS (BSX)
Financial Snapshot †as of 03/31/2019	Total assets: $593M† Tangible book value per share:    $51.27† NPAs to assets: 1.3%† Price to book: 74% Market cap: $52.5M Dividend yield: 3.0% Trailing 12-month ROA: 0.7%† Trailing 12-month ROE: 5.5%†
The Crew	L. Royce Cumbest, Chairman and CEO Clayton Legear, President and COO Paul Moore, Director, largest inside shareholder
The Skinny	As far as marine vessels go, M&M’s ship has proven to be sturdy.  The bank has stayed afloat, held its deposit cargo intact, weathered some storms, and carried a fair share of passenger-customers since it was founded almost 90 years ago. As far as mercantilism goes, however, M&M Bank hasn’t produced profit levels consistent with its name or industry for at least the past ten years. Back in 2011, Merchants & Marine Bancorp tried to grow by expanding its fleet. They spent $3M to acquire $55M in assets held by Heritage First Bank.  Sounded great! Except eight years later, the combined entity is only $8M in assets larger. That’s some hole in the deck to let $47M leak out, don’t you think? I’ll never understand why companies like M&M Bank go pay full price for a ship that’s in no way needed to deliver their goods, when spending the same amount to increase ownership of their own ship would produce far greater returns and plug holes like this. Stranger still, Merchants & Marine insiders seem to be missing the opportunity right before their eyes. Of the top seven of the bank’s officers, five own zero shares. Eight directors out of eleven own less than 1%. Two own zero shares. One owns just 50 shares ($1950 worth). Attention on deck: MNMB is undervalued. You're sailing under the radar. Look at the horizon! We need you to adjust course now.
Sources	Merchants & Marine Bank website Quarterly Financials via OTC Markets S&P Global Market Intelligence

UPDATE: Peoples Financial Corp, Biloxi, MS (PFBX)

I no longer have reservations about calling management of The Peoples Bank "scoundrels." 

When I reviewed Peoples Financial Corp back in 2015, Chairman and CEO Chevis Swetman had some handy excuses — Hurricane Katrina, the BP oil spill. But what's the excuse for being a bloated, non-performing bank to this day?

Clearly, Swetman's not going to do the work it takes to turn The Peoples Bank around. The only folks sweating in this scenario are shareholders. And the only way out of this hot mess is for Swetman to do the right thing and sell this bank.

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

Prospective Buyers	Peoples Financial Corp has the same prospects for selling The Peoples Bank that it had when I reviewed it three years ago. Bancorp South, Tupelo, MS (BXS) First Bancshares, Hattisburg, MS (FBMS) Iberiabank, Lafayette, LA (IBKC)
Financial Snapshot †as of 12/31/2018	Total assets: $617M† Tangible book value per share:    $17.59† NPAs to assets: 3.0%† Price to book: 66% Market cap: $57.6M Dividend yield: 0.17% Trailing 12-month ROA: 0.1%† Trailing 12-month ROE: 0.7%†
Scoundrels	Chevis B Swetman, Chairman, President, and CEO A Wes Fulmer, Executive VP and Chief Credit Officer Laurie A Wood, Senior VP and CFO
Red Flags	Want me to explain how bad this bank is? No sweat! Swetman's 92% efficiency ratio is in the bottom 5% of all US banks His 3% NPAs to assets ratio is in the bottom 5%, too Loans at The Peoples Bank are down 24% in the last five years Book value per share has declined by $1 in spite of stock buybacks at 70% PFBX shareholders have seen the value of their holdings drop by $110M since 2000 Meanwhile... Among the people who suffered this 70% decline in the value of their holdings since 2000 are the clients of Peoples' Trust Department, who collectively own 5% of PFBX Enough already. In three years, Swetman has barely budged. He's now 69. The bank's not working and neither is he. Every stakeholder in PFBX and the bank's geographic area will be better served by new operators who will put some muscle into The Peoples Bank.
Sources	The Peoples Bank website Q4 2018 Earnings Release Q3 2018 Quarterly Report 2018 Proxy Statement  2005 American Banker Article S&P Global Market Intelligence Confidential interviews with management and analysts

United Bancorporation of Alabama, Atmore, AL (UBAB)

A Case of United Banking in Opportunity Zones

Remarkably, even in this political climate, politicians have crossed party lines to arm financial institutions with new tools for developing America's most distressed communities.  

United Bank of Atmore, Alabama is putting some of these tools to good work!

What's the opportunity here for investors? They could nearly double their money in three years. I see UBAB earning over $3 per share, having book value over $23 per share, and trading in the $30's.

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

Prospective Buyers	Non-interest bearing deposits spell opportunity for any enterprising bank. 43% of United Bank's deposits fall in this category and are free to lend in the community. First Bancshares, Hattiesburg, MS (FBMS) Home BancShares, Conway, AR (HOMB) Trustmark, Jackson, MS (TRMK)
Financial Snapshot †as of 03/31/2018	Total assets: $608M† Tangible book value per share:    $15.65† NPAs to assets: 1.0%† Price to book: 113% Market cap: $43.3M Dividend yield: 0.8% Trailing 12-month ROA: 0.7%† Trailing 12-month ROE: 10.9%† TARP: $0* *Redeemed $10.3M 11/2016
The Crew	David D Swift, Sr, Chairman Robert R Jones III, President and CEO Gwendolyn Bailey Braden, Executive VP and COO
The Skinny	United Bank is lending in communities desperately in need of capital: Three out of 16 ZIP Codes United Bank serves are Qualified Opportunity Zones. Five of United Bank's 18 branches (28%) are located in Opportunity Zones (see map). United Bank uses a variety of contemporary tools for getting capital in the hands of area developers, entrepreneurs, and job creators: New Market Tax Credit Program USDA Community Facilities Direct Loan Program Church Street Incubator United Bank may be in some economically distressed areas, but it is performing great! The bank has #1 market share of deposits in 6 of the 15 towns where it has branches. UBAB has paid uninterrupted dividends since 1983. UBAB’s ROA and ROE are on a par with those of other banks in the country.
Sources	United Bank website 2018 Annual Meeting Presentation 2017 Annual Report SNL Financial Economic Innovation Group PolicyMap.com US Department of the Treasury CDFI Fund

Peoples Financial Corp, Biloxi, MS (PFBX)

A Case of Sweating Bullets in Biloxi

As a humanitarian, I can't bring myself to label Chevis Swetman a "scoundrel," in spite of the pressure cooker conditions he has created for his Trust Department clients and other PFBX shareholders. Swetman is reported to have worked up an honest sweat helping people after Hurricane Katrina. And judging from the unusually high number of people he keeps on the bank's payroll, he appears to be motivated by a big heart. But as a Fiduciary, I have to ask Swetman to sell the bank.

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

Prospective Buyers	To win in Mississippi's Harrison and Hancock Counties, you gotta be able to sweat it out against Hancock Bank (HBHC). Peoples' branches could help any of these players stand a chance. Bancorp South, Tupelo, MS (BXS) First Bancshares, Hattiesburg, MS (FBMS) Iberiabank, Lafayette, LA (IBKC)
Financial Snapshot †as of 06/30/2015	Total assets: $680M† Tangible book value per share: $17.99† NPAs to assets: 6.25%† Price to book: 54.1% Market cap: $50M Dividend yield: 0% Trailing 12-month return on assets: - 1.9%† Trailing 12-month return on equity: - 14%†
The Crew	Chevis B Swetman, Chairman, President, and CEO A Wes Fulmer, Executive VP and Chief Credit Officer Laurie A Wood, Senior VP and CFO
The Skinny	If I'm right to infer that people are Swetman's calling, then maybe it would help to broaden his understanding of how real people are being negatively impacted by Peoples' Financial. I'm most bothered what clients of the bank's Trust Department have experienced. These people collectively own 5% of PFBX In most Trust Departments, some clients are elderly, some are widowed, some are sick, and some have dependents whose futures are entirely reliant upon the entrusted investments Surely, Swetman personally knows at least some of these people Let's quantify the harm that has me sweating bullets on behalf of these folks and others: Peoples' Trust Department clients have experienced PFBX stock decline by 70% since 2000 PFBX shareholders collectively have seen the value of their holdings drop by $110M in the same period I really want to believe Swetman is a decent man, and I can forgive him if he changes course now to make amends. Question is, will he break into the sweat needed to do what it will take? Drastically reduce redundancies in staff and other expenses Close underperforming branches Cut his own $354K annual compensation Knock out NPAs, stubbornly holding at a high water mark of 6% And, sell the bank to a more skilled operator In short, Chevis Swetman could still leave a positive legacy here. The work to do is clear, the bank has good prospects for a sale, and at 66, he's still young enough to make a difference pursuing another calling. Let's hope he cares enough about people to do right by Peoples.
Sources	The Peoples Bank website August 2015 10-Q Q2 2015 Quarterly Report April 2015 Shareholders Letter 2014 Proxy Statement SNL Financial Confidential interviews with shareholders and analysts