More Small-Bank Bets From 13F Filings

 | May 17, 2016 | 2:00 PM EDT
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As the 13F deadline approached, all anyone had been able to talk about is Warren Buffett putting around $1 billion into Apple (AAPL). While I find it fascinating that at 85 years old he finally understands tech stocks, the news does little to change my thinking on stocks like Apple and his other tech buy of the quarter -- IBM (IBM).

Buffett has to buy big stocks for size reasons and the yield on both the tech leaders is higher than returns on his cash, so it makes a certain level of sense. Even if we see a broad-based selloff, it is unlikely to drag the stocks low enough that long-sighted Berkshire Hathaway suffers a permanent loss of the capital. I don't have the same size issues he does, and I have no interest in those stocks at all. 

I am, however, interested in 13F filings by those investors that are buying small-bank stocks in the first quarter. Most of these stocks are too small for most institutions to care about and too hard to trade for most individuals who prefer liquidity and action to profits and patience. In addition to reading the Sterne Agee study on bank-activist filings, I have done a great deal of research on the subject, and can tell you that following the leading bank activists and specialists into the smallest of stocks makes a lot of sense -- and a lot of money.

Joseph Stilwell has been one of the best bank-stock activists for decades now. He filed his holdings late on Friday, and appears to remain bullish on community bank stocks in the quarter. He was a buyer of 13 stocks, and a seller of just two, over the period. He is a very patient investor, and my review of holdings shows that he thinks nothing of holding stocks for five years -- and longer -- to profit from increases in shareholder value. 

He opened two new positions in the quarter. He purchased shares of Manistique, MI-based Mackinac Financial (MFNC) and initiated a very small position in Wilmington, DE-based The Bancorp (TBBK). Mackinac trades at 86% of book value. It is a sound bank, with minimal nonperforming assets and a solid balance sheet. The Bancorp trades at 64% of book, but it has had some issues with compliance matters and its discontinued commercial lending operations. It is worth noting that if it fixes these two major issues, and the consent order with regulators is lifted, the shares could shoot higher.

Stilwell also added to a bank where I doubt he will have any influence as an activist. He apparently feels that the Puerto Rican debt mess can be worked out without causing the demise of First Bancorp (FBP). At the end of the first quarter, the bank had $340.5 million of direct exposure to loans and obligations of the Commonwealth of Puerto Rico central government and instrumentalities, and about $1.6 billion of tangible equity, so there is a good chance they have sufficient capital to weather the storm.

It is a bit more speculative than your usual community-bank activism play, but the potential payout is huge. He also doubled his holdings of the largest Puerto Rican bank, Popular (BPOP), during the quarter.

In addition, Stilwell added to an old favorite -- buying more shares of HopFed Bancorp (HFBC). The Hopkinsville, Kentucky-based bank has been an activist target for several years now and Stilwell has a nominee on the board of the bank. The stock price has slipped back in recent weeks, and now trades at just 86% of tangible book value. It has adequate capital, with an equity-to-asset ratio of 10, and the loan portfolio is solid, with nonperforming assets accounting for just 0.73% of total assets.

The bank has about $718 million in assets and several branches close to the attractive Nashville, TN market. Unless it can successfully grow well above the $1 billion mark, it will likely, eventually, be swallowed up by a larger competitor.

Most of Stilwell's addition in the quarter are too small to mention, here on Real Money, but it is worth your time to read his SEC filing. He owns a portfolio of undervalued banks, and does not hesitate to engage management in discussions about increasing shareholder value. I have been involved in several banks that Stilwell also owned that were taken over in the past few years, and I expect to be involved in more in the future.

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