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.

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
  • Confidential interviews with shareholders
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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
      No comments
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