What You Can Learn From 13F Filings

 | Aug 15, 2016 | 4:00 PM EDT
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The 13F deadline is today, and by late afternoon we will be hearing all about what Warren Buffett, David Tepper, David Einhorn, Bill Ackman and Daniel Loeb and the other rock stars of investing were buying and selling in the second quarter.

While I am fascinated by big money moves, I am far more interested in what the small investors involved in the trade of the decade are doing with their capital. Tracking the bank stock activists and specialists has been far more profitable for me than trying to jump on Carl Icahn's coattails before the other million or so investors and traders trying to do the same thing.

FJ Capital filed its report on Friday and I had a chance to review it over the weekend. I love stealing ideas from these guys as we they have been shooting the lights out in the small-bank sector since opening their doors back in 2007. I have spent some time with the folks at FJ Capital over the years and in addition to being very smart bank investors, they are genuinely good guys. I have made quite a bit of money lifting ideas out of their 13F filing and I expect to do so for years to come.

FJ Capital was a buyer of Univest Corp. of Pennsylvania (UVSP) in the second quarter, increasing its holdings by about 22%. Univest just closed on the purchase of Fox Chase Bancorp (FXCB) and that deal brings the bank to about $4 billion in assets, $2.9 billion in loans and $3 billion in deposits. It's the second deal in the last 18 months for Univest, as management is all too aware that the choice for smaller banks right now is grow, die or sell, and they have chosen to grow the bank using both organic and M&A to scale assets.

The fund also increased its stake in Wichita, Kan.-based Equity Financial (EQFN) , which faces the same grow, die or sell mandate. Chairman and CEO Brad Elliott addressed the issue directly in his last earnings release. He told his shareholders, "We continue our commitment to our stockholders to grow both organically and with mergers and acquisitions, such as our recently announced agreement to partner with First Community Bancshares Inc. (FCBC) of Harrison, Ark." That deal should close in the fourth quarter of the year, adding total assets of $475 million, net loans of $352 million and $395 million in deposits to the Equity Financial franchise.

FJ Capital also increased its holdings of Cascade Bancorp (CACB) in Bend, Ore., as well. This bank has been fully committed to growth by acquisition for some time and plans to continue that effort. On his last conference call with investors and analysts, CEO Terry Zink said, "We believe Seattle should be a billion-dollar bank for us. We're not going to get there strictly through organic growth over the next couple of years, so I would think Seattle is a market that we're going to look very closely at for opportunity. Portland would be another market where we believe there is opportunity, there's some smaller banks there and we see the economic pressure on the smaller banks continuing."

I also note that Washington is in the top five of CNBC's best sates for business and Oregon makes it into the top 20. Zink addressed the favorable banking backdrop, saying, "The one thing that I continue to stress is that the very robust economic backdrop that we have here in the Pacific Northwest just continues to outpace the rest of the country. In fact, in a recent survey, of the top 10 best-performing MSAs in the country, Seattle continued to rank No. 7 and Portland was No. 8, so you can't ask for better margins to do business in."

FJ Capital also made a very interesting purchase in the quarter. It is unusual to see FJ buy anything that is not a bank, but it purchased a small stake in Ellington Residential Mortgage (EARN) in the quarter. This real estate investment trust (REIT) specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets. The shares are trading at 90% of net asset value and yield is 11.53% right now. As long as we don't see a sudden spike in rates sometime soon, this REIT should provide solid total returns over the next year.

These are the buys that stood out for me in the quarter, but it's worth your time to read the entire filing by FJ Capital each and every quarter.

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