May is crazy around our house. We have Mother's Day, of course, this past weekend and three of the five of us have birthdays this month. Memorial Day is also right over the horizon, so it seems there is some sort of holiday or special occasion to be celebrated every weekend of the month.
May is also one of my four favorite months of the year, as it contains that special time that I like to call 13F season. May 15 is the deadline for money managers to file their lists of holdings as of the end of the first quarter, and it's a great time to break out the pirate flag and steal ideas from the world's greatest unpaid research department.
We have already seen a few of our value favorites file way ahead of the deadline. Kahn Brothers filed their first report since founder Irving Kahn passed, and they were very inactive in the quarter. The biggest moves made in the first three months of the year were significant reductions in SLM (SLM), Navient (NAVI), Landmark Bancorp (LARK) and Astec Industries (ASTE) at big profits. The only buy of any size was a 16% increase in their stake in BlackBerry (BBRY).
Tweedy Browne stuck with the idea that if there is nothing to do, the best thing to do is nothing. They made no significant purchases in the quarter and pretty much just stayed pat with the hand they held at year's end. They did sell out of the remaining stakes in Joy Global (JOY) and Federated Industries (FII). Tweedy Browne has been around a long time and they clearly know the value of discipline and patience when it comes to investing in stocks.
One of my bank-stock favorites has filed and they had a very interesting quarter. I have a lot of respect for the folks at FJ Capital. The principals came out of Friedman Billings Ramsey, which back in its heyday was one of the best bank research shops and trading outfits I have ever come across. They are very smart guys and their bank-stock hedge fund has turned in solid results since they opened in late 2007. While they are not primarily activist investors, they aren't afraid to take that route if they feel it is required to unlock shareholder value. As always, they had some interesting small bank-stock buys during the first quarter.
Shore Bancshares (SHBI) was one of my first trade-of-the-decade picks, and truth be told they have done pretty much nothing over the past few years. The stock moved lower initially as problem loans went the wrong direction for a period of time, but I held onto my shares and at long last they appear to have righted the ship. Nonperforming assets are down to just 1.53% of total assets, a massive improvement from the 5.4% three years ago. The equity to asset ratio is 10.7, so they have plenty of capital. The bank operates in my stomping grounds on the Eastern Shore of Maryland, a market that is starting to see gains in the local economy and real estate markets, so the recovery should continue over the next few years. The stock currently trades at just 82% of book value.
FJ Capital also bought shares in Beneficial Bancorp (BNCL) during the first three months of the year. Beneficial just completed their second step conversion back in December and is still flush with cash from the offering. The equity to assets ratio is 20, so they are overcapitalized at the moment. They have plenty of cash to buy back stocks, pay dividends or make acquisitions over the next few years. Nonperforming assets are just 0.34% of total assets, so the loan portfolio is in fantastic shape. The stock is trading right at tangible book value, so a small pullback would make it a fantastic bargain purchase. The bank operates in the very competitive Philadelphia region, so a larger competitor buying Beneficial is always a possibility.
Most of the buying activity during the first quarter was in much smaller banks that we cannot talk about here. The firm has said they expect to see continued consolidation, particularly among those banks with less than $1 billion in assets, and they are well positioned to rack up some big gains if they are proven right in their assumption. It is worth your time to go to the SEC website and compare the current filing to the prior quarters and find more small-bank bargains.