First Internet Bank, Indianapolis, IN (FIBP)

A Case of Full Steam Ahead on the Internet Highway

Given First Internet Bank's stellar performance over the past year, I've been bullish on FIBP stock for some time. And now that the bank has hired prominent banker John Keech from Indiana Community Bank, I'd say FIBP just upgraded from steam engine to high-speed rail. If you want to ride this train to profit, there's still time to buy while stock is cheap!

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

Prospective Buyers	Bank of Internet, San Diego, CA (BOFI), as the leader in the more-or-less "branchless banking" space in which First Internet was born, would be a logical acquirer Fifth Third, Cincinnati, OH (FITB) has been expanding its internet bank offerings and has branches in First Internet's "home town" of Indianapolis
Financial Snapshot (as of 09/30/2012)	Total assets: $628M Tangible book value per share: $29.93 NPAs to assets: 1.9% Price to book: 61.7% Market cap: $37.4M Dividend yield: 0% Trailing 12-month return on assets: 0.85% Trailing 12-month return on equity: 8.96% TARP: $0M
Luminaries	David B. Becker, Chairman, President, and CEO Laurinda A. Swank, Senior VP, Secretary, and CFO
Gold Stars	The FIBP money train FIBP is an "Internet Bank" in the truest sense, that is, it offers almost exclusively online banking services and products, with little to no reliance on physical bank branch locations The engineer on board is a unique leader. More of a "tech guy" than a conventional banker, David Becker has been bringing fresh thinking to the game for years, for which he earned a prestigious Sagamore of the Wabash award  Like the famous Wabash express, FIBP is physically headquartered in Indiana, between Detroit and St. Louis, although it mostly operates "virtually" On the right track FIBP earnings have grown for the past 5 quarters, and more than doubled: from $765K (or $.40 a share) in Q3 2011 to $1.6M (or $.85 a share) in Q3 2012 First Internet is doing banking right — adding loans, expanding business, holding expenses Although FIBP stock has doubled, at current prices of 65% of book value, or 7.8 times its past 12 months earnings, it's still cheap Picking up steam FIBP recently added an impressive woman executive to its board, Ann Murtlow, Director of the Federal Reserve Bank of Chicago and former President and CEO of Indianapolis Power and Light I highly anticipate that new hire John Keech will bring assets and lending talent to FIBP from Indiana Community Bank (INCB), which was recently acquired by Old National (ONB), given how other banks have profited by snapping up talent in the wake of Old National's acquisitions Overtaking the competition FIBP would need to more than double book value to overtake its primary competitor, Bank of Internet (BOFI), which is currently trading at about 170% of book Opportunities abound for FIBP to improve its offer, website, and brand to be less confusing and more compelling in an environment where nearly every bank now offers Internet Banking Similarly, it looks to me like even a little investment in PR, search engine optimization, and social media would dramatically raise FIBP's brand within its actual target market — the nation's most "wired" Internet users
Sources	First Internet Bank website 2011 Annual Report SNL Corporate Profile SNL Financial

Mackinac Financial, Manistique, MI (MFNC)

A Case of Scalping Shareholders at the Fork in the Road

Here's one sad story I really hope doesn't repeat itself a third time, or in any other bank at a similar crossroads for that matter. 

The hit that Makinac's shareholders were forced to take in the bank's recent dilutive capital raise was entirely unnecessary and egregious. Bank management bought itself some cash to play with as they please without a strategic plan for putting it to good use, but only by materially injuring real people. Unconscionable.

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Disclosure: As of this posting, I do not own shares of MFNC but may subsequently purchase them.

Prospective Buyers	MFNC would make a nice acquisition target for any of the following banks, but by going forward with its recent dilutive capital raise, management missed the opportunity to obtain a great price for the bank.  Chemical Financial, Midland, MI (CHFC) Fifth Third Bancorp, Cincinnati, OH (FITB) Huntington Bancshares, Columbus, OH (HBAN)
Financial Snapshot (as of 06/30/2012)	Total assets: $524M Tangible book value per share: $14.43 (prior to capital raise) NPAs to assets: 1.7% Price to book: 50.6% Market cap: $40.6M Dividend yield: 0.0% Trailing 12-month return on assets: 1.19% Trailing 12-month return on equity: 10.78% TARP: $11M* *U.S. Government recently auctioned their TARP holdings in MFNC for approximately 96¢ on the dollar ($10.4M)
Scoundrels	Paul D. Tobias, Chairman and CEO Kelly W. George, President Ernie R. Krueger, CFO and Executive VP
Red Flags	THE "CRIME": MFNC under Tobias' leadership executed a rights offering that diluted shareholders and socked TBV by at least 15%. Tobias did a similarly dilutive capital raise in 2004, tasted blood, apparently liked it, and raised his salary 60% from $225K to $360K MFNC faced three perfectly reasonable options for proceeding in ways that would have achieved respectable results without bloodshed (see below) Management disregarded the rational advice and concerns of successful, business-savvy shareholders The scoundrels boast grandiose notions and vague “hopes” for acquiring a branch or bank, despite evidence that they've not done a particularly great job of running their own THE CROSSROADS: MFNC faced three more responsible and humane options than the dilutive capital raise it chose: Carry on for a few years and try to strike some deal with new owners of TARP Wait to raise money until they have an actual deal in the works and could raise it on better terms Sell the bank for something close to book value like Citizens Republic Bancorp (CRBC), which had a similar credit and TARP profile and recently sold for 125% tangible book value and 90% stated book value
Sources	mBank website * May 2012 Proxy Statement SNL Corporate Profile SNL Financial Shareholder letters to management *Note MFNC hasn't posted an Annual Report more recent than 2010

CFS Bancorp, Munster, IN (CITZ)

A Case of Feeding One Family Well in Munster, Indiana

Given CFS Bancorp's dangerously thinning equity—fallen from $258M to $103M in the 14 years since the bank came public—can it really hope to do any better than be rescued by a sale? 

After years of feeding prior management at the expense of stakeholders, and constantly buying stock back at multiples of today's price, this anorexic bank has run out of room to do anything else. Someone, please, bring in the cheese and put an end to the starvation!

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

Prospective Buyers	BMO Financial Group, Toronto, Canada (BMO) Fifth Third Bancorp, Cincinnati, OH (FITB) First Midwest Bancorp, Itasca, IL (FMBI) Horizon Bancorp, Michigan City, IN (HBNC)
Financial Snapshot (as of 3/31/2012)	Total assets: $1.170B Tangible book value per share: $9.66 NPAs to assets: 6.3% Price to book: 56% Market cap: $57.8M Dividend yield: 0.7% Trailing 12-month return on assets: - 0.9% Trailing 12-month return on equity: - 0.3%
The Cast	Robert Ross, Chairman Daryl Pomranke, President, CEO, COO Jerry Weberling, Executive VP, CFO
Red Flags	CITZ hasn't delivered an adequate return on assets or equity since going public in 1998, achieving at best the meager "high" of 5.7% return on equity in 2007, a year when they were loading up on risky real estate loans that would later come back to haunt them. While they've declined from their peak of $86M at year end 2010, CFS Bancorp's NPAs are still a hefty $65.7M, a high 10.1% of loans and REO, and up $1M from last quarter, in spite of $1.7M in chargeoffs. CFS Bancorp's loan loss reserve is just $11.7M, a paltry 15.9% of NPAs. In contrast, Horizon's reserves to NPAs are 88%, Fifth Third's are 55%, and First Midwest's are 48%. Since their mutual conversion in the summer of 1998, CITZ shareholders' equity has declined from $258M to $103M. Prior management cost shareholders an estimated $127M, when Chairman Tom Prisby fired his brother, President James Prisby, with a $1M severance. Why? For suggesting it was in the bank's best interest to sell to Bank Financial (BFIN) in 2004, when book value was $13 and a premium to book of 25% or more was predictable. Former Chairman Tom Prisby, resigned in December 2011, only after receiving $1.2M severance, negotiating a nice severance for his daughter, and paying his son nearly $1M to "decorate" bank branches.
Sources	CITZ Investor Relations page March 2011 Form 10-Q PL Capital's 2010 Proxy Statement (for registered SNL Financial users) SNL Financial Confidential interviews with major investors

Horizon Bancorp, Michigan City, IN (HBNC)

The Case of a Five Star Performer on the Horizon of Lake Michigan

Want to hear a rare tale of a high performing bank trading at a bargain price? After 12 straight years of record earnings and greater than 17% return on equity, Horizon's current price is barely above book value, even after rising five points in the past month. Given how much and for how long Horizon has been outshining its peers, I think at twice book it would still leave room for a nice return.

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Disclosure: As of this posting, I own significant shares of HBNC and a 13-D filing position in acquisition target HRTB, and may subsequently either dispose of them or purchase more.

Prospective Buyers	In my opinion, Horizon shareholders are best served under the current leadership of Messrs Dwight and Edwards. However, it's comforting to know that the bank would be a great target for many companies, including: Fifth Third, Cincinnati, OH (FITB) Wells Fargo, San Francisco, CA (WFC)
Financial Snapshot (as of 3/31/2012)	Total assets: $1.5B Tangible book value per share: $21.35 NPAs to assets: 1.4% Price to book: 110% Market cap: $125M Dividend yield: 2.1% Trailing 12-month return on assets: 1% Trailing 12-month return on equity: 12%
Luminaries	Robert Dabagia, Chairman Craig Dwight, CEO Thomas Edwards, President, COO
Gold Stars	Horizon was recently named one of just 45 banks on the Keefe, Bruyette & Woods Honor Roll of top performing banks in the country. Horizon's earnings grew by 58%, from $8.1M in 2007 to $12.8M in 2011, navigating through the Great Recession with flying colors. Q1 2012 performance measures show even greater profitability—a 1.2% return on assets, 14.7% return on equity, and an even more impressive 17.6% return on tangible common equity. Horizon hasn't experienced a single loss for any quarter for at least the past six years. In contrast, the aggregate earnings of all banks in Indiana and Michigan were a loss in both 2008 and 2009. The highest level of NPAs to total loans Horizon ever reached in the past five years was 2.4% vs the industry average of nearly 5%.
Sources	Horizon Bank website 2011 Form 10-K 2011 Annual Report 2012 Proxy Statement SNL Financial Keefe, Bruyette & Woods