STEELE BANCORP INC (STLE) stock intrinsic value fair value estimate & owner earnings analysis

Steele Bancorp is the holding company for Central Penn Bank & Trust, a community bank with thirteen branches in Union, Snyder, Northumberland and Centre Counties, Pennsylvania. It was formed when Mifflinburg Bancorp and Northumberland Bancorp completed a merger of equals on August 1, 2025, which lifted total assets from $597 million to $1.26 billion and shares outstanding from 1.86 million to 3.41 million. At June 30, 2026 the bank had $1.27 billion of assets, $1.12 billion of deposits, $924 million of loans and $124 million of shareholders' equity. About 11% of loans are to agricultural borrowers, and the loan book is concentrated in those four counties. The shares are quoted on the OTC market and the company says they trade only sporadically. READING THE EARNINGS. Reported 2025 profit of $9.15 per share is not a guide. It includes an $18.3 million one-time accounting gain on the merger (the shares issued were worth less than the net assets received), $5.5 million of merger costs and a $4.0 million one-time reserve on the acquired loans, and the acquired bank contributed only five months. Removing those items, 2025 earnings were about $4.73 per share. The first two full quarters of the combined bank are the better guide: net income of $4.9 million in the first quarter of 2026 and $5.3 million in the second, $10.1 million for the half, or $2.98 per share. That is an annual pace of about $5.95 per share, roughly 1.6% of assets, and net interest margin has already moved a long way: 3.11% in 2024 for the predecessor bank and 3.86% for 2025. We do not treat the full pace as the earning power. We make three adjustments, all to the level of earnings. (1) The bank recorded essentially no loan-loss provision in the first half of 2026 (a $15 thousand credit). We charge 0.15% of loans a year, about $1.1 million after tax, because lending carries real losses even though this bank wrote off only $51 thousand net in 2024 and $55 thousand gross in the first half of 2026. (2) Merger accounting is flattering income. In the five months after closing, accretion of the discount on acquired loans added $2.4 million, partly offset by $1.1 million of amortization of the acquired deposit intangible and smaller items, a net pre-tax benefit of $575 thousand (about $1.4 million a year). Because these are non-cash entries, we remove the net benefit, about $1.1 million after tax. (3) The $10 million of subordinated notes acquired in the merger paid a fixed 4.5% through June 30, 2026 and now floats at SOFR plus 3.82 points, so we deduct about $0.3 million after tax for the higher cost. The result is normalized earnings of about $17.7 million, or $5.21 per share. The window is the two post-merger quarters only: the years before August 2025 describe a bank half the size and 2025 is distorted, so there is no longer history we can fairly use. Two quarters is a thin base, which is why confidence is only moderate. GROWTH PATH. Per-share earnings on our basis rose from $2.41 in 2024 to $4.73 in 2025 (+96%), but that jump comes from the merger, not from organic growth. For year one we assume 0% growth from the $5.21 level, below that trailing figure, because loans grew only 0.6% in the first half of 2026 ($918.2 million to $924.0 million) and nothing in the filings secures faster growth. Net loan increases of $48 million in 2024 and $52 million in 2025 are left out: two years of history, neither through a downturn, is not a proven repeatable process. Retained earnings are not credited with earning anything extra. After year ten each case holds its level flat, because a $1.12 billion deposit base spread across thirteen branches is a structural feature of the business rather than a contract that expires, but no growth is credited. BASE CASE: $85.58 per share. Earnings hold flat at $5.21 per share, with one ordinary credit downturn in years three and four in which provisions rise to 0.5% of loans (about $0.78 per share less in each of those years), then flat after year ten. As a bank, its deposits and borrowings are its raw material and interest is already charged in its earnings, so no debt is deducted from any case: the business is worth $85.58 per share, nothing further is owed to lenders beyond what is already in the earnings, and the difference is $85.58. The subordinated notes mature in June 2031 and can be repaid at par from June 30, 2026. BEAR CASE: $55.67 per share. Two named risks combine. First, a full credit cycle of the 2008-2010 kind. According to the FDIC's fourth-quarter 2010 Quarterly Banking Profile, insured institutions' net charge-offs ran 2.52% of loans in 2009 and 2.54% in 2010, with real estate loans at 1.96% in 2010 (1-4 family 1.62%, nonfarm nonresidential 1.22%). We use provisions of 1.5% of this bank's loans in each of two years and 1.0% in a third, which cuts earnings by about $3.00, $3.00 and $1.89 per share in those years. Nonaccrual loans have already risen from $0.4 million at the end of 2024 to $6.3 million at the end of 2025 and $7.4 million at June 30, 2026 (0.80% of loans). Second, the margin gives back 50 basis points, a bit over half of the 75-point gain between 2024 and 2025, applied to roughly $1.2 billion of earning assets (our estimate from the $1.27 billion balance sheet), costing about $1.44 per share a year permanently. Earnings run at $0.77, $0.77 and $1.88 per share in the three crisis years and settle at $3.77 afterward. Earnings stay positive, so no new shares are issued, but dividends could be cut or suspended. The bear value of $55.67 exceeds tangible book value of roughly $33 per share (equity less the unamortized $12 million deposit intangible; we found no goodwill) because earnings stay positive through the whole episode and the franchise keeps earning after it; a bank worth less than its capital would show losses, and this case does not. Nothing further is deducted for debt, so the difference is $55.67. BULL CASE: $95.89 per share. The first-half 2026 results simply persist: margin and the merger accounting benefit hold, credit costs stay near 0.05% of loans, and earnings run at about $5.75 per share, flat. No growth is credited, so the bull is close to the base. WHAT WE CHECKED. The allowance for credit losses is about $9.9 million (1.07% of loans), 135% of nonaccrual loans, so even writing off half the nonaccrual balance would cost under $1 per share once. The bank's leverage ratio was 8.56% at December 31, 2025 versus the 9% needed to stay in the simplified community-bank capital framework (9.67% a year earlier); regulations allow up to two quarters below 9% while above 8%. First-half retained earnings of about $7.5 million, roughly 0.6% of assets, exceed that gap and point toward compliance, but we could not confirm the June 30, 2026 ratio from the data available. A $5.1 million favorable swing in other assets and liabilities in 2025 operating cash flow could not be traced. Our earlier estimate of $30, $57 and $78 was made on a different basis and is not comparable. MARGIN-OF-SAFETY PRICE: $25. We are fairly sure of the loan book's quality today but only moderately sure of the earnings level: two clean quarters, a margin well above the predecessor's, and nonaccrual loans that have grown. The worst plausible outcome is the credit cycle above combined with margin reversion, and the structure survives it: earnings stay positive and the allowance and about $124 million of equity absorb losses. Outcomes no case models, such as a capital shortfall forcing a share issue at a poor price or a concentrated agricultural or real estate loss, would hurt more. If we are wrong on margin and it returns fully to the predecessor's 3.11%, earnings fall to roughly $3.00 per share; if we are wrong on credit, we are in the bear case. At $25 the normalized earnings of $5.21 are a 21% yield on the price, the bear-case level of $3.77 is still 15%, the current dividend (about $0.76 per share in the first half, $1.52 annualized) is 6%, and the price is about a quarter below tangible book. The shares are thinly traded, so the price assumes a holding period of several years, over which the dividend is paid and retained earnings build the bank's equity.