Here are some of the reasons I was bullish on the small Iowa-based bank:
- The reasonable conservatism of its commercial-centric loan portfolio.
- Its improved and currently low efficiency ratio, which indicates well-run operations.
- A decent net interest margin leading to decent returns on assets and equity, and a nice little dividend.
- All of the above for a pretty low relative and absolute cost.
Checking back in, I'm seeing no reason to change my opinion. With shares down about 7% since my original write-up, I'm slightly more bullish. We're getting this solid bank for just 10% above book value, and 11 times earnings. As such, I'll be doubling down on my original buy.
If you're an individual investor interested in banking, I've got two cautions for you:
- At a market cap of around $200 million, MidWest One is a small-cap stock with limited trading activity. Be sure to set a limit order if you ultimately end up buying shares after doing your research.
- I buy these types of smaller banks as part of a portfolio. By buying a bunch of them, diversification allows me to largely ignore factors such as the state of the local economy (Iowa in this case), and some aspects of the loan portfolio (e.g. MidWest One's reliance on commercial loans).
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