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.

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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	State Bank of Cross Plains website Q4 2015 Shareholder Letter 2014 Annual Report SNL Financial Confidential interviews with management and shareholders

Southeastern Bank Financial, Augusta, GA (SBFC)

The Case of a Juicy Bank Stock in the Peachtree State

If I were limited to owning stock in just one bank in this country, I'd probably put my money into Augusta, Georgia's Southeastern Bank Financial.

It's really rare to find a bank doing this well trading this cheaply. It could easily fetch twice book value in a sale, but given the bank's rate of earnings growth and return on equity, I see no reason why SBFC's stellar team shouldn't keep running the bank themselves. At the end of the day, it's reasonable to expect that owners of SBFC stock will wake up sometime in the next 10 years with shares trading at a multiple of today's price.

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

Prospective Buyers	By acquiring SBFC's 12 branches and $1.4B in deposits, any of these deposit-hungry banks could expect to scale regional operations manyfold: First Citizens Bancorp, Columbia, SC (FCNCA) has seven nearby branches holding collectively less than $300M in deposits. SunTrust Banks, Atlanta, GA (STI) has four local branches with $165M in deposits.  Toronto Dominion Bank, Toronto, Canada (TD) has just two branches in the area and $88M in deposits.
Financial Snapshot (as of 3/31/2012)	Total assets: $1.6B Tangible book value per share: $18 NPAs to assets: 2.9% Price to book: 70% Market cap: $85M Dividend yield: 0% Trailing 12-month return on assets: 0.8% Trailing 12-month return on equity: 10.7%
Luminaries	Robert W. Pollard, Jr., Chairman Daniel Blanton, President and CEO Ronald Thigpen, Executive VP and COO
Gold Stars	Four traits about Southeastern Bank Financial that I find especially peachy include: Top Five Performance.  According to an SNL Article, for the one-year period ending September 30, 2011 only three banks in the entire US grew their tangible book value by a greater percentage than SBFC. In fact, since the start of the Great Recession in 2007, SBFC's book value rose over 20% while most of our nation's banks saw their book value dive. High Insider Ownership. Insiders own over 30% and have been steady buyers in the open market over the years. The largest individual shareholders include Founder Pollard, Sr. (15.2%), Current Chairman Pollard, Jr., (8.7%), and Current President and CEO Blanton (8%). Superior Asset Quality. SBFC's NPAs are a manageable 2.9% of assets and never got to be more than 3.2%, well below national averages. Reserves are a healthy 69% of non-performing loans. (In my experience, bank regulators like to see reserves above 30%.) Good Old-Fashioned Self-Reliance. While other banks were taking TARP funding from the government (that is, from taxpayers), Southeastern Bank Financial raised $12M from friends and family.
Sources	Georgia Bank & Trust website SNL Corporate Profile 2011 Annual Report 2011 Proxy Statement SNL Article (Members Only) SNL Financial