I came across an article this weekend from SNL Financial that says our old friends at PL Capital are opening another hedge fund to target banks -- but this time, midsized ones that haven't faced many activist investors before.
For those who are unfamiliar with PL Capital, it's is one of the more aggressive and successful activist investors in the small-community-bank space (and has had great success with its current funds). But this time out, the firm is raising its sights and targeting midsized banks with assets between $3 billion and $75 billion.
To quote from SNL's article: "'There's been virtually no activism in the larger community and regional bank space,' said co-founder and principal Richard Lashley. He pointed to Basswood Capital Management LLC's activism with Lake Success, N.Y.-based Astoria Financial Corp. as 'a classic example of what we're thinking about.'"
Now, this is pretty big news.
As Lashley noted, there hasn't been a lot of activist activity to date in midsize banks -- and if PL Capital can achieve anywhere near the success that it's had with small institutions, that could be a high-performing strategy.
We already know that the most popular takeover candidates among smaller banks have been those with excess capital and below-average returns on equity and assets.
So, I sat down this weekend and ran a screen of midsized banks within PL Capital's price range to see if I could find any strong takeover possibilities. As it turns out, this is fairly fertile hunting ground.
True, the midsized banks that I found don't trade at the steep discount to book value that some tiny banks do. But there are still plenty of midsized firms trading at reasonable prices that might make attractive activist targets.
Those to consider include:
BancorpSouth (BXS)
This bank is a little pricey at 137% of book value, but would make a fantastic target. The bank has below-average returns on equity to assets, and its equity-to-asset ratio is a little above the national average at 12.32.
With $13 billion in assets, Tupelo, Miss.-based BXS sits in the low end of PL Capital's target range. But the firm has a great network of 305 branches in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida, Missouri and Illinois.
BancorpSouth has also just raised its dividend, and shares yield 1.868%. And while management has been holding off on any type of stock-buyback plan, CEO Dan Rollins indicated during the most recent conference call that one is forthcoming.
"We talk about that on a regular basis, and I think we are sitting with our hand on the switch to go," he said. "We just have not done that yet, and I can't tell you that we are going to start this week or next week or this month or next month, but we will be buying stock back."
I like what I see here, as there's plenty of room for improvement at the company.
BancorpSouth has two pending takeover deals that have yet to close because of a Consumer Financial Protection Bureau review of fair-lending practices. But should those deals get canceled, that could create a buyable selloff in the stock.
So, BXS is on my "buy in a correction/pullback/collapse" list. The lack of a buyback program and a very-attractive branch network could easily bring in an activist investor like PL Capital.
F.N.B. Corp. (FNB)
Pittsburgh-based F.N.B. is another potentially interesting midsize bank, particularly given its recent purchase of branches and assets from Fifth Third Bancorp (FITB). FNB bought 17 Fifth Third branches and $383 million in deposits in its home marketplace.
The Pittsburgh bank's returns on equity and assets are below national average, but aren't that horrible. And FNB's equity-to-asset ratio is 12.45, so the firm is well financed. Additionally, the bank's nonperforming-assets ratio is just .70, so it's not dealing with a troubled-loan portfolio by any stretch of the imagination.
Lastly, FNB recently announced plans to buy Metro Bancorp (METR) -- which, oddly enough, was an activist target where PL Capital pushed for a sale. Assuming the Metro deal closes, FNB will have more than $19 billion in assets and 300 branches throughout Pennsylvania, Maryland, Ohio and West Virginia.
The bank already has strong market share in Pittsburgh, Cleveland and Baltimore. The stock also trades at just 108% of book value at the current price, so there seems to be plenty of upside for an aggressive activist.
More to Come
The above are just a "toe in the water" of the available midsized banks, so I'll list some more potential activist targets tomorrow.
I'll also be talking to executives, analysts and investors at the FIG Partners Bank CEO Conference in Atlanta today and tomorrow, so I anticipate a bank-heavy week.
