Merchants Financial Group, Winona, MN (MFGI)

A Case of Winning On One's Own in Winona


Looks to me like all Merchants Bank Management needs is to be left alone to keep doing what they do! 

Given the historical rate of this bank's earnings, I can see MFGI book value exceeding $50 by 2015 and the stock trading at $60. That makes today’s shares at $32.50 an irresistible bargain, and this stock a winner for me.

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

Prospective Buyers
Although I'd prefer to see Merchants Bank remain independent, the bank's impressive footprint so close to Minneapolis has got to be appealing to one of these Twin City heavyweights:
TCF Financial, Wayzata, MN (TCB)
US Bancorp, Minneapolis, MN (USB)
Wells Fargo, San Francisco, CA (WFC)
Financial Snapshot
(as of 09/30/2013)

Total assets:
$1.344B
Tangible book value per share:
$33.16
NPAs to assets:
0.94%
Price to book:
77%
Market cap:
$88.7M
Dividend yield:
2.77%
Trailing 12-month return on assets:
1.14%
Trailing 12-month return on equity:
9.9%

Luminaries
Richard L. Mahoney, President and CEO
Rodney R. Nelson, Executive VP
Susan M. Savat, Senior VP and CFO
Gold Stars
Let me count the ways I love this bank!
  1. Great value. At 7x trailing 12 month earnings, MFGI stock is exceptionally cheap, especially when you consider that the bank ranks in the top quartile of US banks in both ROA and ROE.
  2. Healthy insider ownership. Including ESOP shares, Merchants Bank insiders own over 23% of MFGI shares.
  3. Conservative bankers. Thanks to the sound underwriting practices of Merchants Bank loan officers, NPAs are a low 0.94% of loans and barely got above 4% during the worst of the Great Recession.
  4. Lagging share price. While the KBW Bank Index has risen over 38% in the past 12 months, MFGI is up only 1%.
  5. Phenomenal growth. Although Merchants Bank has been operating soundly since 1875, in recent years, it has shown tremendous growth in assets and earnings, as illustrated in the chart below.
Sources
  • Interviews with management
  • Confidential interviews with shareholders
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UPDATE: CFS Bancorp, Munster, IN (CITZ)

What a difference a year can make! I am happy to report that the CFS Bancorp of today presents a far prettier picture than when I reviewed it last May.

After 14 years of feeding the insatiable Prisby family at the expense of its own health and prospects, the bank has healed remarkably under the care of more ethical managers. So much so that it has attracted a fine suitor and will soon be merging with First Merchants Corporation of Muncie, IN (FRME).

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

Prospective Buyers
One year after our May 2012 review of the bank, CITZ surprised us by agreeing to be bought by First Merchants Corporation, Muncie, IN (FRME), a prospective buyer we hadn't anticipated.
Financial Snapshot
(as of 6/30/2013)


MAR 2012
JUN 2013
Total assets:
$1.170B
$1.131B
Tangible book value per share:
$9.66
$10.21
NPAs to assets:
6.3%
6.01%
Price to book:
56%
124.4%
Market cap:
$57.8M
$128.8M
Dividend yield:
0.7%
0.3%
Trailing 12-month return on assets:
-0.9%
0.37%
Trailing 12-month return on equity: 
-0.3%
3.78%  



The Crew
Robert Ross, Chairman
Daryl Pomranke, President, CEO, COO
Jerry Weberling, Executive VP, CFO
The Skinny
No doubt, I owe a few people a big shout out and "Thank You" on behalf of all CITZ shareholders. Congratulations are due to two folks, in particular.

Thank you, Daryl! The bank under Daryl Pomranke's leadership is no longer the anorexic, poorly performing, nepotist institution it was under Prisby family management. Pomranke deserves credit for:
  • Decreasing NPAs from $65.7M to $56.1M in the quarter preceding the merger announcement (a 15% improvement)
    • Increasing profitability from next to nothing to a respectable $1.5M per quarter
    • Transforming company culture from a dysfunctional family-centric mindset to one more appropriate for a public company 

    Thank you, John! Clearly, CFS Bancorp's future got brighter the minute shareholders elected John Palmer of PL Capital to the CFS Bancorp board. Palmer deserves acknowledgment for:
    • Shining a spotlight on Thomas Prisby's abuse of his Office, as Chairman and CEO of a public company   
    • Advocating on behalf of both the bank and its shareholders, as needed for fiscal recovery 
    • Standing firm, despite Prisby's best efforts to thwart responsible leadership and due process 

    No thanks to you, Prisby clan! Who knows what CFS Bancorp could have been on its own, had you respected your fiduciary responsibilities and not treated it as your personal piggy bank?
      Sources
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      Northway Financial Inc, North Conway, NH (NWYF)

      A Case of a Rock Solid Opportunity in the Granite State


      You'd have to dig pretty hard to unearth a better bank stock to buy now than Northway Financial. NWYF's current price of $15.70 is a bargain, and the bank's takeover prospects present strong opportunity for capital gains. I'm pretty happy to own more of this high-yielding block of granite than I do of diamonds or gold.

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

      Prospective Buyers
      Surveying the regional banking landscape, I can see three institutions for which an acquisition of Northway Financial would make great sense:
      New Hampshire Thrift Bancshares, Newport, NH (NHTB)
      People's United Financial, Bridgeport, CT (PBCT)
      Toronto Dominion Bank, Toronto, Canada (TD)
      Financial Snapshot
      (as of 03/31/2013)

      Total assets:
      $850M
      Tangible book value per share:
      $17.30
      NPAs to assets:
      2.2%
      Price to book:
      75%
      Market cap:
      $43.4M
      Dividend yield:
      3.9%
      Trailing 12-month return on assets:
      0.83%
      Trailing 12-month return on equity:
      8.83%
      TARP:
      $0M*
      *Redeemed $10M in full, July 2011
      Luminaries
      William J. Woodward, Chairman, President and CEO
      Fletcher Adams, Vice Chairman of the Board
      Russell Cronin Jr. Senior VP and CFO
      Gold Stars
      GREAT VALUE!
      • Northway Financial is producing a solid 8.8% Return on Equity. That's 32% better than New Hampshire Thrift's 6.6%, and 87% better than People's rocky 4.7% 
      • NWYF stock is currently trading at a significant discount to its stated book value of $21.03 per share, where regional competitors are trading at a premium
      • Currently trading for just 6.7x earnings, NWYF offers a far better PE Multiple than its peers, considering NHTB is trading for 13x earnings and PBCT is trading for 21.4x earnings 
      ROOM TO GROW!
      • Having already grown tangible equity by over 55% in the past four years mainly through record earnings, Northway Financial is inarguably on a growth path
      • Northway could easily double the already fat 3.9% dividend it pays out, which represents only 15% of the bank's earnings (half the industry average of 30%)
      TAKEOVER POTENTIAL?
      • Northway Financial enjoys significant marketshare in three of the six counties in which it operates, including market dominance in Coos County, NH, where it owns 33% of the market. So any bank looking to grow in these counties could obtain a strong foothold in Northway's bedrock 
      • Northway's Chairman and Vice Chairman are both over 65 years old —an age at which it's not unusual to be making plans for retirement. So it's reasonable to anticipate that they'd at least consider offers for selling this durable bank
      • As NWYF's single largest shareholder, Chairman William Woodward would be personally enriched by a sale of the bank, and in my book, he has certainly earned the right to exit on a high note and move on to other endeavors
      Sources
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