Joseph Stilwell's 13F Filings Can Lead to Big Profits

 | Nov 04, 2016 | 1:00 PM EDT
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The filing deadline for 13F reports from money managers and hedge funds is still 11 days away, but we are seeing some early filers send in their list of holdings to the SEC. I track these filings carefully as comparing them to the prior quarter allows us to see what the best value and activist managers are buying and selling in their portfolios. It is like having the best minds on Wall Street as a free research department. I have made a lot of money over the years from idea piracy of this sort, and I expect to continue to do so for the rest of my career.

Being as invested in the Trade of the Decade in Community Banks, I pay particular attention to the 13F filings of the small handful of investors who specialize in small banks. Some of these investors consider themselves activists and are willing to engage management in conversations and confrontation if necessary to force changes that unlock shareholder value. One of the more successful activists is Joseph Stilwell, and his filing is already in at the SEC and available online for comparison.

It was a relatively quiet quarter for Stilwell. He made some small additions and subtractions to his existing holdings and made three new purchases during the third quarter of the year. He sold completely out of HomeTrust Bancshares (HTBI) , a stock I have owned for some time.

I have nice gains in the stock and will review their recent report to see if I am overlooking the latest reports to see if I am missing anything at the bank that should trigger a sale. The other significant sale was 27% of his fund's stake in First Financial Northwest FFNW.

He was a buyer of shares of Stonegate Bancorp (SGBK) here in Florida. The bank has been doing an excellent job of growing in the Sunshine State and recently closed on the acquisition of Regents Bancorp in Palm Beach County. That brings total assets at Stonegate up to $2.8 billion as it edges closer to the $5 billion sweet spot. The stock is a little rich at 1.4x book value, but they are earning a 1.2% return on assets, putting them in the high-performance bank category that is trading at greater than average multiples of book value. Earnings have been growing at over 30% a year, and the PE is just 16, so it could be considered a bargain on earnings multiples and continued growth potential.

HMN Financial (HMNF) in Rochester, Minn., is more of a traditional banking bargain stock. The shares trade at just 82% if book value and 12x earnings right now. The bank is doing a solid job of growing earnings, and in the third quarter reported net income of $1.4 million, an increase of $0.6 million compared to net income of $0.8 million for the third quarter of 2015. Non-performing assets are just 0.85% of total assets, and the bank reported an equity-to-assets ratio of 10.91%, so it's in solid financial shape. I am a long-time shareholder and delighted that Stilwell has decided to get involved in the bank as well.

He was also a buyer of FSB Community Bankshares (FSBC) in Fairport, N.Y., during the third quarter of 2016. The bank completed its conversion from a mutual thrift in July of this year. Post conversion the shares are trading at just 80% of book value so it is a classic conversion bargain at the current price. Problem assets are virtually nonexistent with FSB Bancorp reporting just one $18,000 home-equity line that was nonperforming at the end of September. The equity-to-assets ratio is 12.1%, so the bank is in outstanding financial shape right now.

Stilwell also added to his existing positions in several very small banks. They don't trade enough to mention here, but it will be worth your time to go to the SEC website and track them down. Most of the merger activity this year has been in very small banks, and following Stilwell when he buys these tiny banks has been a very profitable endeavor for me over the past several years.

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