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Small Bank Newsletter
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July 2001
1. LANDMARK BANCSHARES, INC. (LARK 18 ½) is a unitary savings
and loan company for Landmark Federal Savings Ban
k. Total assets
at over $237 million at 12/30/2000. When they complete their merger
with MNB Bancshares next quarter, this will jump by over $155 million
and make Landmark a very sizable institution. There will be no overlap
and great cost savings from this merger. Many of MNB's branches are
also brand new, located in strong markets. They also just opened
a supermarket branch in Dillions in West Manhattan, and one new branch
was acquired from Commercial Federal Bank in Wamego. Loan growth
was strong at 8% for MNB in 2000. Asset quality is strong at both
institutions with loan reserves more than adequate. This merger,
in our opinion, will produce great earnings growth for years to come
and with a strong cash dividend, this stock should be a holding in
your portfolio. Landmark has 1.09 million shares outstanding and
MNB has 1.56 million shares outstanding with both companies management
owning over 40% of the stock. Look for them to do the right thing.
The average current cash dividend yield on both banks is 3%. With
Landmarks book value at $21.50 and MNB book value at almost $10,
these are both strong values at current levels. The combined company
should have very strong earnings in 2002 and with the current P/E
of 8.5 for Landmark and a current P/E of 12 for MNB makes a compelling
story. Also, once costs come down at MNB, due t
o their strong growth
over the past 5 years, earnings should really come through. Landmark's
stock is more liquid and we would accumulate now under $19 and buy
a full position under $18. This one, again, for long-term investors
only 3-5 years. Downside is very limited on both of these issues.
Located Dodge City, KS.
2. COMMERCIAL BANCSHARES INC. (CMOH 23-24) is the bank holding company of Commercial
Savings Bank. They operate 14 offices in mostly rural sections of Ohio. They
have total assets of $262 million at the close of 2000 and have opened 5
branches in the past 2 years. One a supermarket branch in a Wal-Mart Center
in Findlay, and one a former Bank One branch. While this growth has impacted
earnings in the short run, long-term, this growth should add to the bottom
line nicely. The stock price has done nothing in years. Still below the 1997
level, however, with a 3%+ cash dividend and earnings that will come thru
next year, a possible $1.85 a share in 2002. Their loan growth is 4% and
growing and asset quality is very strong with non-performing loans at 0.20%
at the end of 2000 and reserves at 0.97%. Insiders own 24% of the stock and
with just over 1 million shares outstanding. It is a strong buy under $25
and has very limited downside risk from these levels. Their book value is
$18 a share and they have been around since 1920. Worth $35 a share in takeout.
Located Upper Sandusky, Ohio.
FOLLOW UPS:
- 1. CHEMUNG FINANCIAL (CHMG 21) announced a 10% stock repurchase program; con
tinue
to buy up to $22.
2. STATE BANCORP (STB 17 ½) announced a 5% stock dividend
and an increased quarterly cash dividend of $
0.14(a 12.7% increase).
The stock has moved up
nicely this year. Continue to hold, our 3rd largest holdings.
3. FIRST COLONIAL GROUP (FTCG 15 ½) announced another
5% stock dividend payable this month. Management is lost, unless
they sell, looks like dead money.
If you need the tax loss, sell, and move on. Otherwise sit tight and pray
for a takeout. Downside is very limited from these levels.
4. PEOPLES HOLDINGS COMPANY (PHC 28) sell for a flat trade and move on. Dead
money from here.
5. LEEDS FEDERAL BANKSHARES (LFED 16) while the stock is up 40% since it
was first recommended in the 6/99 Newsletter, we would still buy this one
up to
$17.5. Asset quality is still the best and with the recent RFED and RSBI
merger premium's given, LFED should be able to fetch $28-30 a share. Downside
should
still be very limited even from these higher levels' due to the current strong
banking sector and deal activity. Their new branch is doing just O.K. and
management has no reason not to sell in this hot market. Now our sixth largest
holding.
6. ANDOVER BANCORP (ANDB 46) being acquired for $48 a share
or $333 million in Banknorth (BKNG) stock. Sell for a 120%
return in just over 4½ years.
Perhaps Central Bancorp (CEBK 20) will be next, worth $30 a share easy.
7.
VIRGINIA COMMONWEALTH (VCFC 33) merging with Virginia Financial
(VFNL) as a merger of equals. Sell, fully valued for a 25%+ return
in less than 2 years.
8. INTERCOUNTY BANCSHARES (NBTF 18 ½) was mentioned in
The Dick Davis Digest last week causing great exposure for a
thinly traded stock and causing
a dry up of stock for sale
. Sit tight.
9. SUMMIT FINANCIAL GROUP (SMMF 39) while the stock is up 35% since it was
first recommended last year, we would continue to buy this one up to the $44
level. Earnings continue to come through; management is buying the stock and
still trading below book value. Located in the hot WV marketplace. They could
be the next takeover target worth at least $60 a share. Plus, they just raised
their cash dividend 50%, nice going management.
The past 6 months have been the best period for many of the bank
s we follow
in several years and while many stocks are no longer buys, (solid holds) sight
tight and wait for many more deals to occur over the next several years. When
no one wanted these stocks 1-2 years ago, we jumped in with both feet and could
buy all the stock we wanted. Like I said in the past, you must buy thinly traded
issues when their going down. Today, if we try to buy even small quantities
of many small bank stocks,
it moves the prices greatly in most cases. Now we
are getting the rewards with deal after deal. Also, the risk reward ratio is
still much better on many small banks stocks than any other sector of the market
at the current time in a still high priced, general stock market. No-one cared
about risk the last few years but a few managers like ourselves. This is one
of the most important factors in investing preservation of capital. Now, we
are the top rated money manager in our sector as rated by Nelson Information.
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As always, you may call me with any questions on any stock. This
is a free service to our subscribers.
To contact Douglas Hughes via ema
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