Tracking the Activists in Small Bank Stocks

 | Sep 18, 2013 | 3:00 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


Among the items I track on a regular basis are 13D filings by activist and interested investors. These filings indicate that a holder of 5% or more of a company's stock intends to have a conversation with management about the direction of the company. These filings frequently lead to a new business plan or a reorganization or outright sale of the company. All of these tend to create a premium to the current stock price and produce gains for shareholders, so this is a useful and potentially profitable activity.

This has particularly been true among the small bank stocks. You won't see the big activists such as Carl Icahn and Bill Ackman in the little banks, but a handful of investors have had a great deal of success in the sector.

Lawrence Seidman has been active in the small bank stocks for as long as I can remember. The former Securities and Exchange Commission attorney has been buying undervalued banks and thrifts since the mid-1980s with a great deal of success, and he has been snapping up shares of some banks of late. He has been in numerous proxy fights over the years, and more than 20 of the banks in which he has filed an activist position have been taken over through the years.

Seidman recently added to his position in one of my old favorites, Fox Chase Bancorp (FXCB). The 11-branch bank, based in Hatboro, Pa., is a thrift conversion from a few years back. The equity-to-assets ratio is over 12, and nonperforming assets are 1.49%, so the bank is in sound financial shape. The activist investor has not announced any particular actions such as a request for board seats or a proxy fight, but in his filing he does reserve the right to do so. The Philadelphia market is one of those over-banked Northeastern markets where a takeover of a strong yet inexpensively valued bank would not be shock to anyone. Fox Chase certainly fits that profile.

He was not so sanguine in his filing regarding OBA Financial Services (OBAF), a smaller bank in Maryland that serves the wealthy counties of Montgomery, Anne Arundel and Howard. He starts by saying, "I was dismayed by Mr. Weller's statement that the OBAF Board of Directors has no interest in entertaining a sale of OBAF." Then he turns up the pressure by informing the bank's management, "I believe that a sale to a strategic buyer, because of OBAF's poor financial performance, is the only way for the OBAF shareholders to maximize the value of their investment. I also believe that there are several strategic buyers, who would provide the OBAF shareholders an adequate premium and greater liquidity."

Institutions own about 45% of OBA Financial and might be receptive to the idea of a sale if Seidman pushes a proxy fight. Since insider ownership is fairly low, the board would stand a good chance of losing a proxy fight. The stock trades at about 94% of book value, so there would appear to be pretty good upside if a sale is the outcome.

Seidman has also been a steady buyer of a bank where he is already a director. He owns more than 20% of Center Bancorp (CNBC) and has been picking shares on a regular basis. The bank has 14 branches and about $1.6 billion in assets as of the last quarter. The branches are in the northern New Jersey market, including Union, Morris and Bergen counties. This is a wealthy area close to New York City that is heavily overbanked, but considering the stellar performance of this bank, I would not be surprised to see it grow by acquisition rather than seeing a sale of the bank.

Center Bancorp trades at 1.5x book value, so I might not rush to buy shares, but it is on my radar screen, because the company can push the stock higher by growing though acquisition or by being purchased by a larger bank. The bank is in solid financial shape with equity-to-assets ratio of more than 12, and nonperforming assets are a minuscule 0.17% of total assets.

I make no secret of my fondness of the small bank stocks, and tracking the activists in the sector is one way of uncovering ideas that have potential short-term catalysts for unlocking value.

Columnist Conversations

After a very calm and sedate period of volatility which saw the VIX fall not only to all time lows but had a r...
today is a good day to lighten the load and take some positions off the table. SOLD WB OCT 85 CALL AT 11 (i...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...
I reached out last week to my close friend Ken Shreve, who is a prominent writer for the IBD.  I asked Ke...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.