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.

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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: 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. Consumers has a low 85 bps cost of deposits — 42% of its deposits are transaction accounts. 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.  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	Consumers National Bank website 2019 Annual Report S&P Global Market Intelligence Confidential interviews with shareholders and analysts

UPDATE: CNA Financial Corp, Latrobe, PA (CNAF)

Three years after my November 2014 Timyan Bank Alert review of CNAF, the stock is still ripe for investors cherry picking high dividends.

CNAF is still cheap — priced roughly the same as in 2014, whereas the BKX index is up 47%.

Today, though, I'm less impressed with Commercial Bank & Trust's Management, which is missing opportunities to cultivate value and is putting CNAF at risk of languishing around book value for another three years.

More responsible caretakers of the stock would reduce the bank's bond market bet, and use excess capital to repurchase shares. CNAF could then reach $30 per share and pay increased dividends.

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

Prospective Buyers	As a unionized bank, Commercial Bank & Trust of PA is highly unlikely to sell in the foreseeable future, but that doesn't mean these local players wouldn't find it to be sweet pickings. First Commonwealth, Indiana, PA (FCF) F.N.B Corp, Pittsburgh, PA (FNB) S&T Bancorp, Indiana, PA (STBA)
Financial Snapshot †as of 09/30/2017	Total assets: $429M† Tangible book value per share: $20.70† NPAs to assets: 0.08%† Price to book: 106% Market cap: $62.8M Dividend yield: 4.7% Trailing 12-month ROA: 1.04%† Trailing 12-month ROE: 7.51%†
The Crew	George V. Welty, Chairman Gregg E. Hunter, Vice Chairman, President and CEO Thomas D. Watters, Executive VP and CFO
The Skinny	Sweet Notes I find a lot of things sweet about this stock pick: Insiders own 25% of CNAF  CEO Hunter is CNAF's largest holder with 9.9% CNAF offers a nice safe dividend yielding 4.7% The stock is cheap to book at 106% Commercial Bank & Trust of PA has built a wonderful deposit base and growing, albeit slowly, loan portfolio 32% of the bank's deposits are low-cost transaction accounts Credit quality at the bank is pristine  The bulk of loans are lower-risk 1-4 family mortgages Sour Notes On the other hand, every cherry has a pit, and CNAF could choke on any one of these pitfalls: Commercial Bank & Trust of PA is holding more securities in its portfolio than advisable, subjecting the bank to significant losses if interest rates rise The bank's location in a low growth area of Pennsylvania limits opportunities for loan growth Management has probably squeezed all the earnings growth we're going to see from cost cutting — there's not much more to cut Management's reluctance to buy back shares may spoil CNAF's best opportunity to grow earnings per share
Sources	Commercial Bank & Trust website 2017 Proxy Statement Q3 2017 Quarterly Report 2016 Annual Report SNL Financial Confidential interviews with shareholders and analysts

UPDATE: Franklin Financial Services, Chambersburg, PA (FRAF)

I'd like to plant a new seed for this money tree.

Since my August 2012 review, Franklin Financial has grown in value just as I had predicted.

Although not the screaming bargain it was back then, given another three years, FRAF should trade at 150% of its estimated book value of $31 or $47 per share.

Were Management to list FRAF on the NASDAQ, the stock would be eligible for inclusion in the Russell Index and trade more in line with its peers. (The average NASDAQ bank stock trades for 186% of book value and 21x earnings.)

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

Prospective Buyers	F&M Trust's low 23 bps of funding costs, #1 marketshare position in Franklin County, and #2 position in Fulton County make the bank a very attractive franchise for acquisitive neighbors like these: F.N.B. Corporation, Pittsburgh, PA (FNB) Fulton Financial Corporation, Lancaster, PA (FULT) Northwest Bancshares Inc., Warren, PA (NWBI)
Financial Snapshot †as of 03/31/2017	Total assets: $1.13B† Tangible book value per share:    $25.47† NPAs to assets: 1.6%† Price to book: 113.4% Market cap: $135.2M Dividend yield: 3.1% Trailing 12-month ROA: 0.8%† Trailing 12-month ROE: 7.2%†
The Crew	G. Warren Elliott, Chairman Timothy G. Henry, President and CEO Mark R. Hollar,  Senior VP, Treasurer and CFO
The Skinny	If the crew at Franklin Financial Services takes me up on my suggestion to list FRAF on NASDAQ, and FRAF starts to trade in line with its peers, the stock could trade for $44 pretty quickly. Improvements at Franklin Financial since my 2012 review Transaction accounts now make up 43% of F&M Trust's deposits, versus 29% five years ago NPAs are down to 1.6% and still declining  Dividend yield is pretty high at 3.1%, and now rising Other things to like about this deeply rooted Pennsylvania money tree The bank's markets have grown, and its share of those markets has, too Merger activity has lessened the competition making FRAF more valuable FRAF does not get the credit it deserves for its solid and growing trust business, which has $725M in assets Going forward I expect FRAF will consistently earn over 1% on assets and 10% on equity
Sources	F&M Trust website March 2017 Investor Presentation SNL Financial Confidential interviews with shareholders and analysts

UPDATE: AmeriServ Financial, Johnstown, PA (ASRV)

Remarkably, everything I said in the intro to my January 2014 Timyan Bank Alert™ review of AmeriServ Financial is still true: AmeriServ is no "five star performer." Nor is it a "mismanaged underperformer." It is still, however, a pretty good bank that is trading below book value with not a single Wall Street analyst following it. Which makes it a great "seize the moment," no-brainer kind of buy for the enterprising investor.

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

Prospective Buyers	Although AmeriServ's #1 market share position in six Pennsylvania towns is attractive, its status as a unionized bank makes it unlikely another bank will seek to buy it. F.N.B. Corp - Pittsburgh, PA (FNB) - relocated from Hermitage Northwest Bancshares, Inc - Warren, PA (NWBI)
Financial Snapshot †as of 12/31/2016	Total assets: $1.2B† Tangible book value per share: $4.41† NPAs to assets: 0.1%† Price to book: 74% Market cap: $70.4M Dividend yield: 1.6% Trailing 12-month return on assets: 0.2%† Trailing 12-month return on equity: 2.3% TARP: $0* *Repaid $20M in 2011
The Crew	Craig Ford, Chairman Jeffrey Stopko, President and CEO (promoted from CFO) Michael Lynch, Senior VP, CFO, Chief Risk and Investment Officer
The Skinny	This is still a pretty good bank. AmeriServ has reported profits in 24 out of the last 25 quarters. Insiders know what an opportunity they have here. Insider ownership of ASRV remains pretty high at 8.8% and growing. There have been numerous insider buys in the open market in the past year alone, and only one sell. Thankfully, AmeriServ Management is also shareholder friendly, as evidenced by their recent decision to buy back up to 5% of ASRV stock in the open market. Investors can still make money here. ASRV is the cheapest billion dollar bank stock in the U.S. I believe that within two years, AmeriServ will be reporting quarterly earnings of 10¢ per share, book value will have hit the high $5 range, and ASRV will trading near book value. If I am right, that portends a healthy 50% gain over today's share price.
Sources	AmeriServ Financial Bank website 2016 Form 10-K 2016 Annual Shareholder Meeting Presentation SNL Financial Confidential interviews with Management, shareholders and analysts

Commercial National Financial Corp, Latrobe, PA (CNAF)

A Case of Sweet Pickings in Mister Rogers' Neighborhood

Here's one bank stock ripe for cherry picking investors! CNA Financial offers just about everything one could hope for in a bank stock—it's cheap, performing well, managed well, pays a huge dividend, enjoys substantial insider ownership, and offers acquisitive neighbors a sweet prospect. What else would one expect from the town that produced Arnold Palmer, Mister Rogers, and the banana split?

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

Prospective Buyers	CNAF is the most trusted community bank in three Westmoreland County, PA cities — Latrobe, Pleasant Unity, and Ligonier, in which these fine banks also do business: First Commonwealth Financial, Indiana, PA (FCF) F.N.B. Corp, Pittsburg, PA (FNB) S&T Bancorp, Indiana, PA (STBA)
Financial Snapshot (as of 09/30/2014)	Total assets: $397M Tangible book value per share: $19.76 NPAs to assets: 0.02% Price to book: 109% Market cap: $61.8M Dividend yield: 4.8% Trailing 12-month return on assets: 1.6% Trailing 12-month return on equity: 12.5% TARP: $0
Luminaries	George V. Welty, Chairman Gregg E. Hunter, Vice Chairman, President and CEO Thomas D. Watters, Executive VP and CFO
Gold Stars	As far as community bank stocks go, CNAF is mostly sweet as a banana split. Trustworthy people. The managers at CNA Financial sure seem like the modest Mister Rogers sort that you'd want to be your neighbor. Seasoned bankers, they pay themselves well below industry average and exhibit an attitude of "right relationship" with shareholders, probably because they themselves hold over a quarter of outstanding shares and will only reap what they sow. Consistent performance. Commercial National has been making money since 1934. Even during the Great Recession, its NPAs never got to 1%, and the bank never needed TARP. If my research is accurate, only six other publicly traded banks pay a higher dividend. Solid, fee-based income stream. Commercial Bank & Trust earns nearly a million dollars a year from its $150M trust business. Prospective acquirers that reach into stronger markets will no doubt appreciate the significant excess capital this makes available for lending. Like the best cherry or "Arnold Palmer," there's just enough of a sour note here to make this stock pick tasty. Low growth market. The population of Westmoreland County, PA has declined every year since it peaked at nearly 400,000 in 1980, which likely explains why CNA Financial both holds more in securities than in loans and is priced for picking.
Sources	Commercial Bank & Trust website 2013 Annual Report Q3 2014 Quarterly Report 2013 Proxy Statement SNL Financial Confidential interviews with shareholders

AmeriServ Financial, Johnstown, PA (ASRV)

An Extreme Case of Under the Radar

I'll admit, AmeriServ doesn't fall into either of the categories I usually write about: This bank is no "five star performer." Nor is it a "mismanaged underperformer." It is, however, a pretty good bank that is trading for way below book value with not a single Wall Street analyst following it. Which makes it a great "seize the moment," no-brainer kind of buy for the enterprising investor.

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

Prospective Buyers	I'd say these acquisition-minded banks in particular should be looking at this bargain billion dollar bank buy in their backyard. F.N.B. Corp - Hermitage, PA (FNB) First Niagara Financial Group - Buffalo, NY (FNFG) Northwest Bancshares, Inc - Warren, PA (NWBI)
Financial Snapshot (as of 09/30/2013)	Total assets: $1.04B Tangible book value per share: $4.09 NPAs to assets: 0.42% Price to book: 64.1% Market cap: $57.3M Dividend yield: 1.3% Trailing 12-month return on assets: 0.4% Trailing 12-month return on equity: 5.0% TARP: $0* *Repaid $20M in 2011
The Crew	Craig Ford, Chairman Glenn Wilson, President and CEO Jeffrey Stopko, Executive VP and CFO
The Skinny	This is a pretty good bank. AmeriServ has enjoyed 14 profitable quarters in a row, is getting fee income from its trust and advisory business, and has a strong credit culture wherein NPAs haven't exceeded 2% of assets for as long as I can tell. Insiders know what an opportunity they have here. Insider ownership of ASRV is pretty high at 8.3% and growing. There have been 26 insider buys in the open market in the past year alone, and zero sells. An acquiring bank could make money here.  The buyer could afford to pay a 25% premium to book value, because — assuming the requisite efficiencies obtained in a merger — the acquisition would be immediately accretive to both book value and earnings.   Any investor can make money here! AmeriServ pays a decent dividend, and even without an acquirer in the story, there's a more than fair chance your investment would double in value, because it's only a matter of time before the market recognizes this bank for what it is.
Sources	AmeriServ Financial Bank website 2012 Annual Report 2012 Proxy Statement SNL Financial Confidential interviews with shareholders

Embassy Bancorp, Bethlehem, PA (EMYB)

A Case of a Dynamic Duo in the Steel City

The two in charge at Embassy sure know how to pack a punch. This is one bank that I believe could get 150%-160% of book value in a sale. If this pair succeeds in growing book value to over $8 over the next three years, a sale would present a really nice opportunity to double one's money.

And given the Chairman's previous experience selling Ambassador to Fulton in 1998, I think it's reasonable to anticipate that the bank will sell when the price is right. That being said, at a discount to book and only 8x earnings, EMBY will almost certainly make shareholders money even if the bank never sells.

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

Prospective Buyers	In addition to the obvious neighborhood heavyweights, F. N. B. Corp (FNB) and M & T Bank Corp (MTB), each of these three banks has good reason to be interested in Embassy, given its 5% share of the deposit market in both Lehigh County and North Hampton County First Niagara Financial, Buffalo, NY (FNFG) - acquiring EMYB would double FNFG's deposit market share in Lehigh and make it #2 in the county Fulton Financial, Lancaster, PA (FULT) National Penn Bancshares, Boyertown, PA (NPBC) - acquiring EMYB would make NPBC #1 in North Hampton and a solid #2 in Lehigh
Financial Snapshot (as of 03/31/2013)	Total assets: $636M Tangible book value per share: $7.07 NPAs to assets: 1.5% Price to book: 95% Market cap: $47M Dividend yield: 0.6% Trailing 12-month return on assets: 0.92% Trailing 12-month return on equity: 12.9% TARP: $0M
Luminaries	David Lobach, Jr, Chairman, President, CEO Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO
Gold Stars	I just love how efficient and committed Embassy is! Just look at how many jobs the two leaders at the helm take on their own shoulders. Here are a few numbers that speak volumes, as well. Employees per branch. With just 70 employees across its 7 branches, Embassy is operating 30% to 90% more efficiently than its peers. M & T has almost twice as many employees per branch (19) First Niagara, Fulton, and National Penn have 30% more per branch (13) Assets per employee. With a whopping $9.2M in assets per employee, Embassy is operating 50% to 100% more efficiently than its peers Fulton has half the assets per employee ($4.6M) First Niagara is managing a third less assets per employee ($6M) National Penn and M & T aren't managing any more, with $5M and $5.7M in assets per employee each, respectively Insider ownership. With insiders owning an impressive 32% of EMYB stock, Embassy managers and directors are 3x to 20x as invested in their bank's success as their peers are in their own Fulton and First Niagara insiders own a measly 1.5% and 2% of their own FULT and FNFG stocks, respectively M & T and National Penn insiders, although wildly beating the average bank's level of insider ownership with 10% and 20% of their respective MTB and NPBC stocks, still fall far short of Embassy's impressive level
Sources	Embassy Bank website 2012 Annual Report 2012 Annual Meeting and Proxy Statement SNL Financial Confidential interviews with shareholders

Franklin Financial Services, Chambersburg, PA (FRAF)

The Case of a Deeply-Rooted Pennsylvania Money Tree

If you're looking for a safe place to earn a solid dividend at a bargain price, Franklin Financial Services might just be your money tree. 

You can buy this undervalued bank's stock today at $13.60, earn a 5% dividend for the foreseeable future, and obtain a reasonable chance of doubling your money.

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

Prospective Buyers	F.N.B. Corp, Hermitage, PA (FNB) M&T Bank Corp, Buffalo, NY (MTB) PNC Financial Services, Pittsburgh, PA (PNC)
Financial Snapshot (as of 3/31/2012)	Total assets: $1.067B Book value per share: $21.75 NPAs to assets: 3.9% Price to book: 66% Market cap: $56M Dividend yield: 4.9% Trailing 12-month return on assets: 0.6% Trailing 12-month return on equity: 7.1%
The Crew	G Warren Elliott, Chairman William Snell Jr, President and CEO Mark Hollar, Senior VP, Treasurer, and CFO
The Skinny	How undervalued is FRAF's stock price? Over the past 12 months, the KBW Bank Index climbed 12.2%, while FRAF stock fell 17% The average bank in the KBW Index trades at 124% of book value, while investors can now buy FRAF at 61% of book value The average bank in the KBW Index trades at 15x earnings, while FRAF is trading at 8x earnings Therefore, Franklin Financial Services is effectively trading at a 50% discount  Why is FRAF so cheap? Most investors have never heard of it FRAF recently cut its dividend so many people who did own it appear to be selling Current EPS of $1.60 is well below historical level of $2.50 NPAs were still rising in Q1 and may not have peaked Brokerage firms do not appear to be following FRAF What would make the stock price double? When NPAs start to decline… Then earnings and book value will grow… And people will start to trust that the dividend will not be cut again… Then FRAF could trade at book value  What makes this stock relatively safe? The bank has been around for over 100 years and is very conservative Its managers don’t pay themselves exorbitant salaries or take big risks It has maintained profitability through the Great Recession It never took TARP Regional unemployment is significantly below the national average
Sources	F&M Trust website 2011 Annual Report SNL Corporate Profile Franklin County Development Corporation website Yahoo! Finance Key Statistics