UPDATE: Merchants Financial Group, Winona, MN (MFGI)

Apr 20, 2017

My assessment of MFGI hasn't changed much in the three and a half years since my first Timyan Bank Alert™ review of Merchants Financial Group (November 2013): it still looks to me like "all Merchants Bank Management needs is to be left alone to keep doing what they do."

This community bank stock has largely performed as I had expected — the price has nearly doubled from 2013's $32.50, and stated book value has reached $55. Therefore, I'm updating my expectations: over the next three years, I anticipate that book value will approach $70, and MFGI will trade above $100.

In other words, Merchants Financial stock is still a "winner" in my book.

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

Prospective Buyers

As in 2013, I'd prefer to see Merchants Bank remain independent. Strongly positioned within the footprints of these banks though, it certainly has attractive options.

Associated Bank, Green Bay, WI (ASB)
Bank of Montreal, Toronto, Canada (BMO)
Bremer Financial, Saint Paul, MN (private)

Financial Snapshot

Luminaries

Scott Biesanz, Chairman
Greg Evans, President and CEO
Susan M. Savat, Senior VP and CFO

Gold Stars

Let me count the ways I still love this bank!

Excellent value. At 11.4x earnings, and 108% of book value, MFGI is still exceptionally cheap, especially when you consider that the bank ranks in the top quartile of US banks in both ROA and ROE.
Healthy insider ownership. The ESOP together with officers and directors still hold about 23% of the stock. and local Fastenal Founders Slaggie and Kierlin own another 16%.
Conservative bankers. Thanks to the sound underwriting practices of Merchants Bank loan officers, NPAs are a low 1.2% of loans.

Since my last review, it has also occurred to me that Merchants Financial Group has another winning card it could play:

With its market cap of $161M, were MFGI to list on Nasdaq, it would be eligible for inclusion in the Russell 2000 Index. Given its thin trading and float, the stock could then exceed my expectations pretty fast.

Sources

Bank

Other

SNL Financial (Members Only)
Interviews with management