The 13-F season is well underway and I am starting to see the stacks pile up on my desk. We aren't quite to the point where my wife closes the office door so she doesn't have to look at the mountain of paper, but we are getting there.
I am spending quite a bit of time in the evenings going through the filings -- while the Orioles beat up some hapless opponent in the background -- in search of ideas. The holding disclosure reports are basically the best research service in the history of markets and it's free if you are willing to spend the time comparing one quarter to the next to see changes in holdings of the world's best investors.
So far, three of my bank stocks activists and specialists have reported. These are my favorite investors to follow as they on top of the trade of the decade in community banks. Quite often their buying serves as a catalyst for management to initiate actions that boost the share price.
FSI Group is a firm that offers long-short hedge funds and private equity funds in the financial services industry. The firm has been around since 1995 and founder Steven Stein has been active in the community banks space for decades and has served on the board of several banks during his career. He has seen several cycles of the banking industry now and it's worth paying attention when he buys and sells stocks.
FSI Group sold or reduced 65 positions while buying or adding to just 22. It sold out of several of the big banks including Wells Fargo (WFC), JPMorgan Chase (JPM), SunTrust (STI), Goldman Sachs (GS), Morgan Stanley (MS) and BB&T (BBT). It also reduced its Citigroup (C) holdings by about 11%. I am not a fan of the big banks at these levels and they will probably lead the way lower if we get a market decline, so I like this move. It was a buyer of one big bank, increasing its Bank of America (BAC) Holdings by 83% during the quarter.
The firm was moving into Texas banks during the quarter as well. It purchased a new stake in Texas Capital BancShares (TCBI) in Dallas. The bank reported a decent quarter, but earnings were down by about 30% year over year as a result of credit problems related to the energy portfolio. The bank feels it is adequately reserved for future losses, but at 1.35x book value I am not ready to jump into this name.
I am almost ready to join them in buying shares of Green Bancorp (GNBC). On its recent earnings call the Houston-based bank announced it was segregating its energy assets and implementing a managed asset reduction plan to exit the energy business altogether. Nonperforming assets are 2.01% and exiting the energy business should help that number improve over the balance of the year. At 81% of book value the stock is getting interesting.
The firm was buying in the Northwest region of the country as well. It purchased a new position in Heritage Financial (HFWA) in Olympia, Washington, Pacific Continental (PCBK) in Eugene, Oregon and Cascade Bancorp (CACB) in Bend, Oregon. I particularly like the Cascade purchase as the bank is committed to growing both organically and by acquisition and has not been shy about making whole bank and branch acquisitions in the past few years. It is richly priced at this level, but I could get interested in the stock in a sell off as successful growth-oriented acquirers can be a source of enormous long-term profits.
The company was also a buyer of two old favorite regional banks during the first three months. Both Keycorp (KEY) and Fifth Third (FITB) sold off sharply in the first quarter and were trading at decent discounts to book value. They were among the first banks I was buying back in 2009 and 2010 as the credit crisis began to recede. Both have good management and I would not be afraid to buy if they were to fall again in a market decline.
FSI Group has been around for a long time and has compiled a strong track record investing in financial stocks. Like many of the bank stock investors I track, they do not talk to media very often, but their 13-F filings can give some insight to what they like and do not like in the current market for bank and other financial stocks. Their filing should be on your must-read list every quarter.