Showing posts with label STBA. Show all posts
Showing posts with label STBA. Show all posts

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.

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
    • Confidential interviews with shareholders and analysts
    3 comments
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    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?

    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
    • Confidential interviews with shareholders
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