I have one more bank activist to report on before we move away from my favorite topic. I have read studies on bank stock activist results and done my own research on the subject, and the excess return from following bank stock specialists and activists is just smart investing, in my opinion. I think investors willing to put in the time and effort could easily outperform the market over time by just focusing on the specialty way of investing. One investor that I tracked in my hand study of activists is Johnny Guerry of Clover Partners. His activist picks have done very well over the past decade.
Guerry has been in the news of late with a proxy fight at Financial Institutions (FISI) . He lost the proxy fight and failed to gain the sought-after board seats, but that doesn't necessarily mean he will go away. He said in an email that he will be monitoring how well the Warsaw, NY-based bank does in executing its strategic plans and how the shareholder base evolves. I suspect he is hoping that the form of evolution that develops is more activists buying the bank and joining his campaign to unlock shareholder value. In his initial 13D filing, Guerry suggested the bank could be worth $34-$37 a share in a sale. That is enough of a premium to possibly attract some fellow activists to become shareholders.
Clover's biggest purchase in the second quarter was Citizens Financial Group (CFG) . Although the shares have bounced nicely from the late June low, Citizens remains one of the cheapest large regional U.S. banks. The shares are trading at 95% of tangible book value and 13x earnings. It has a great franchise through the Midwest, New England and the Mid Atlantic, with more than 1200 branches. Management have done a fantastic job of executing their plan since fully separating form Royal Bank of Scotland (RBS) and are decidedly shareholder friendly, with a buyback plan in place and dividend yield of 2.05%.
Clover was also buying United Financial Bancorp (UBNK) during the quarter. The Glastonbury, Connecticut-based bank has more than 50 branches with about $6.4 billion in assets. That puts it in what I call the banking sweet spot, with a long runway ahead until it hits the $10 billion asset level where additional regulatory restrictions and oversight come into play. United has attracted the attention of other bank stock investors, as both PL Capital and Wellington Management were buying shares during the second quarter. The stock should appeal to growth and income investors as well, with a yield of 3.58% right now.
The third largest purchase in the second quarter was Seacoast Banking Corporation of Florida (SBCF) . Seacoast is a little rich for me in terms of price to book value, but it is doing an excellent job of growing via acquisition. It isn't done yet, either. CEO Dennis Hudson III said on a recent conference call: "We believe that our reputation as a seasoned aggregator of banks will benefit us in completing additional carefully considered acquisitions going forward.We look for acquisitions to supplement that growth where it really makes sense, and so the really key attribute for us is focusing on the customers that we're acquiring and determining whether they fit into our strategy going forward. And thus far, the acquisitions have significantly improved some of our performance metrics, as we've integrated them into this larger issue of transformation. So they're very impactful and we'll continue to look for opportunities." Of course, with $4.4 billion in assets and 52 branches on the red hot Florida market, we can't rule out an even bigger bank deciding the Seacoast would be a good fit for their expansion plans at some point.
The fund continued to buy shares of Southwest Bancorp (OKSB) . It has been a buyer of the Stillwater Oklahoma based bank since 2013 and Clover kept buying into the current quarter. In July it crossed the 5% level and filed a 13D that said "The Reporting Persons purchased the Common Stock for investment purposes. The MHC Mutual Conversion Fund Group's intent is to influence the policies of the Issuer and assert shareholder rights, with a goal of maximizing the value of the Common Stock." The bank pays a decent dividend and yields 1.68%, and management announced in May a new buyback plan that will kick in when the existing plan is exhausted. Southwest is in a bit of an M&A pause to take the time to finish integrating previous purchases, but once the process is complete I would expect to see it refocus on M&A as a path to growth. With locations in Oklahoma, Texas, Colorado and Kansas seeing an improvement in oil pricing, this could also drive earnings growth and loan quality for the bank.
Clover has worked its way onto the must-read list of bank stock activists and investor. Those of you with an interest in the trade of the decade in community bank stocks should also take the time to read the current filing, as I have run out of room before covering all of the bank buys in the second quarter of the 2016.
