Before moving on from bank stock activists I want to cover one final bank-related 13F filing. The folks at FJ Capital are among my favorite investors to "steal" from each quarter as the firm has quickly built a strong track record. Since starting its fund in 2008, FJ Capital has outperformed the market by a substantial margin due to its strong bank stock selections. While FJ Capital not really an activist firm it will take a more aggressive stance in order to get management moving in the right direction.
FJ Capital was busy in the first quarter of the year. The firm sold 39 different stocks while buying just 20. Much of the selling appears to be takeover-related but it trimmed some positions, too. Many community banks, especially those that have made some smart acquisitions to grow earnings, have seen their valuations move up to where it no longer makes sense to continue holding their shares.
FJ Capital sold some of its position in BNC Bancorp (BNCN) at 150% of book, 44% of its holdings in Yadkin Financial (YDKN) at 1.3x book value and Ameris Bancorp (ABCB) at 1.7x book value. The two numbers to watch closest in a community bank portfolio are the price-to-book value ratio and the level of nonperforming assets. FJ Capital appears to be doing a solid job of selling stocks as they reach the upper limits of reasonable valuations.
Along with everyone else that specializes in bank stocks, FJ Capital was a buyer of Malvern Federal (MLVF) last quarter. Pennsylvania-based Malvern is heavily owned by activists and banks stock specialists and I would not be surprise if the bank is sold at some point in 2016. In addition to FJ Capital, EJF Capital, Joseph Stilwell, PL Capital, Lawrence Seidman and Clover Partners all have a greater-than-5% interest in the bank.
Malvern, with seven branches and about $750 million in assets in the Philadelphia suburbs, could be worth more than $20 a share to the right buyer. Nonperforming assets are just 0.20% of total assets, so buyers might be willing to pay up for a good branch network and a solid loan portfolio.
I get a serious case of the "warm and fuzzies" when investors smarter and better informed than myself buy the same stocks as me. FJ Capital more than quadrupled its holdings in Royal Bancshares of Pennsylvania (RBPAA) in the first quarter of 2016. The Bala Cynwyd bank has done a fantastic job of cleaning up its nonperforming assets, which are are now just 1.55% of total assets, down from more than 4% three years ago. And if we exclude tax-lien operations, nonperforming assets are just 0.56% of total assets.
RBPAA stock attracted a lot of attention in the first quarter as Wellington, EJF Capital and Emerald Funds were also buyers. The shares have moved higher over the past few months and are trading at 1.27x book value. Should they sell off in a market decline, long-term trade-of-the-decade buyers should consider RBPAA.
FJ Capital was also a buyer of First Bank (FRBA), a Hamilton, N.J.-based bank that I like in the trade of the decade portfolio. FRBA is trading at 92% of book value and nonperforming assets are just 0.62% of total assets.
First Bank is in need of some increases in capital, either raised or earned, as the equity to asset ratio is just 7.68%. In the first quarter, it increased capital by $70 million, or about 8%, year over year, so that's a good start. Management is aware of this issue as CEO Patrick Ryan told shareholders "After two consecutive quarters of very strong growth, capital planning moves to the front of the agenda. The market opportunity in front of us is substantial, especially given our larger geographic reach, our larger legal lending limit, and the continued consolidation in the industry." With its 10 branches between Philadelphia and New York, First Bank will either grow or someone will find it too attractive to resists in that very competitive region.
FJ Capital has only been around since 2008 but has already established itself as one of the best bank stock investors in the U.S. And it has also passed my ultimate test, as I have made a lot of money stealing their stock ideas over the past few years.