Next week is one of my favorite weeks of the year. Pitchers and catchers begin to report all over Florida and Arizona, and the long national nightmare is finally over. As a bonus, 13F filings are also due next Wednesday, so we get a look at what the nation's leading money managers and hedge funds were up in the fourth quarter of the year. We need to be careful as many stocks have made nice runs since the election, and you need to be careful you are not chasing a stock the activist of value manager was able to buy for quite a bit less than the current stock price. Selling activity is also more important than ever to note. If very smart and successful investors are selling some of your favorite stocks, you may want to review your reasons for continuing to own the shares. Some of the filings are starting to trickle in and what my wife calls the Pile of Death is beginning to form on my desk.
The filings from community bank activist Joseph Stilwell was very much an eye opener for me this quarter. He sold or reduced his take in 19 stocks during the quarter while buying or increasing his position in just five. One of the five, Magyar Bancorp (MGYR) was for a whopping 100 shares. The total value of his equity holding fell by 15% during a quarter when many of his small-bank holdings increased by 20% or so. He has apparently built a substantial cash reserve in small banks during the Trump Bump.
His largest buy in the quarter was Oriental Financial Group (OFG) , a Puerto Rican bank trading at 75% of book value. His largest sell was First BankCorp (FBP) , another Puerto Rican bank where he more than doubled his money last year. It is a pretty safe bet that his shares of Oriental were bought below the current price as the stock is up 20% in the last quarter. I would wait for something of a pullback before following his lead with this recovering bank.
His other buys were small banks that have engaged in conversion transactions in the not-too-distant past. They are way too small to mention here, but I will only say that I own them and it would be worth your time to dig through his filings and identify the banks. It is clear that Stilwell's fund did some serious lightening up on his stake in community banks during the post-election rally. That's worth reflecting upon as small bank stocks have continued to rally in 2017.
Michael Salzhauer is another bank stock investor I track pretty closely every 13F season. Judging by his filing, he finished the year in a very good mood and is probably still celebrating today. He made some aggressive bets on banks in the fourth quarter, buying call options and warrants of stocks like Bank of America (BAC) , Action Alerts PLUS holding Wells Fargo (WFC) , BB&T (BBT) , JP Morgan (JPM) , Bank of New York Mellon (BK) and SunTrust Banks (STI) during the last three months of 2016. It looks like all his more leveraged bets are much higher than when he bought them. It is too late to chase them, but the trades can serve as a reminder that this is a smart guy worth paying attention to when he buys or sells bank stocks.
At least one of his picks has not done so well. He started buying shares of New Orleans-based First NBC Bank Holding (FNBC) in late 2015 and made two large additional purchases in the third and fourth quarters of 2016. Regulators have deemed the bank a troubled institution and First NBC has entered into consent orders with the Federal Deposit Insurance Corporation and the Louisiana Office of Financial Institutions. They need to reduce problem assets and raise capital to comply with the order, and the stock has been pretty much slaughtered. His cost basis in the stock has to be somewhere around $10 or higher, and the shares fetch about $3.75 today.
The bank is taking steps to fix the problems. First NBC has announced the sale of $1.3 billion in loans and nine First NBC Bank branches to Hancock Holdings in a transaction that will provide about $200 million of additional liquidity. Former Hancock CEO Carl Chaney has been selected to serve as CEO, pending regulatory approval, to try to execute a successful turnaround. They are not out to the woods yet as a write-down of some additional assets is expected, and I suspect they will need another infusion of capital.
If the bank remains viable then investors who made additional purchases as the stock plunged in the fourth quarter as Salzhauer did they will be paid off handsomely. If they do not pass muster with regulators then this could still be a complete loss. It might be worth a small bet, but I wouldn't be willing to bet the farm on this troubled bank.
We will see more filings over the next few days and I will continue to report any interesting discoveries.