Found Some New Ideas to Pilfer

 | Dec 19, 2013 | 6:00 AM EST  | Comments
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Stock quotes in this article:

banc

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cvcy

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cbnj

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fubc

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ibcp

On Tuesday I wrote about little activists and noted that Patriot Financial was picking up shares of Banc of California (BANC) and intended to protect their shareholder rights in the company. I have run across Patriot before, when the firm took a stake in Central Valley Community Bancorp (CVCY) back in May, and that stock has bounced more than 40%.

I decided I needed to do a little deeper digging on these guys and see exactly who they are. They seem to be buying some names that fit well with the Trade of the Decade in small-bank stocks, and I am always happy to steal ideas from other investors in the sector.

Patriot's website describes the firm as private-equity fund focused on investing in community banks, thrifts and other financial-service-related companies. This really grabs my attention, as community banks and the private-equity mind set are two of my favorite things in the world of investing and markets. Looking at the biographies of the management team, they have deep experience as bankers, having served as CEOs of several different banks, other members of the team have deep private-equity experience.

All in all, the execs at Patriot seem to know their business. I looked into exactly which banks in which they have invested in order to see if we could steal some potentially profitable stock ideas.

Looking at the portfolio, I noticed right away that Patriot owns shares of Cape Bancorp of New Jersey (CBNJ), a bank I mentioned before -- and one I own. Patriot isn't not alone in its admiration of the bank, as noted investors like FJF Capital and Michael Price also own shares of it.

Cape is a former mutual thrift that had its conversion back in 2008. The bank has 15 branches in Atlantic and Cape May counties in southern New Jersey, with a little over $1 billion worth of assets. The bank is seeing steady improvement in its loan portfolio, and has plenty of capital with equity to assets ratio of over 11x. Patriot owns more than 10% of the bank, and one suspects the firm is looking for a big return out of the shares over the next few years. Management is consistently buying back stock, and it recently raised the dividend. Right now shares trade right at tangible book value. It is an OK buy here, but would be a great buy for a Trade of the Decade portfolio if it pulls back over the next few months.

The fund also owns more than 6% of 1st United Bancorp (FUBC) in Boca Raton, Fla. The bank has 22 branches with about $1.7 billion in total assets, and it recently completed an acquisition of Enterprise Bancorp, which allowed it to expand in Palm Beach county. Board Chairman Warren Orlando talked about 1st United's growth plans in the last earnings report, telling investors: "We expect our continued strong capital base, liquidity and overall financial strength to continue to allow us the opportunity to continue to expand both organically as well as through potential acquisitions."

1st United's equity-to-assets ratio is over 13x, so it has plenty of capital right now. The stock trades at just about 1.15x book value, and would be a solid long -term buy at a slightly lower price.

Away from that, one of Patriot's recent purchases is a bank that I have mentioned in the past and also own. Independent Bank of Michigan (IBCP) is located between East Lansing, Mich., and Grand Rapids, Mich., in a part of the state that is seeing strong economic activity. The bank is seeing impressive improvements in the credit quality of its loan portfolio, and just posted its seventh consecutive quarterly profit. With the stock priced at about a 21% premium to tangible book value right now, it is probably best to wait for a pullback to buy the shares -- but I really like the long-term prospects for this bank.

I am not the least little bit shy about blatantly stealing ideas from investors who are smarter than I am with lots more experience in their favored sectors. Patriot seems to have a real edge in small-bank stocks with a depth of experience in the industry. In addition, the management team is composed of private equity investors who appear to be patient holders of the stocks they buy in order to capture returns measured in multiples rather than percentages. In short, Patriot's ideas are now on the steal list.

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