Now that the election is over it's time to get back to work. In my case that means reading the early 13F filings for "investable" ideas. Many of the bank stock specialists and activists I follow have filed their reports well ahead of next Tuesday's deadline. These illiquid and unloved stocks should do well regardless of market conditions, and I have been studying the filings carefully in search of new ideas. Lawrence Seidman is one of my favorite bank stock activists. He has had lots of success at forcing banks to unlock shareholder value, and I have made a lot of money stealing his ideas over the years. He filed early this quarter so we can get a look at which community bank stock she has been buying this year.
Seidman continues to be a buyer of Prudential Bancorp (PBIP) , which is based in Philadelphia. He has been buying the stock since 2013 and has been pretty well rewarded over that time. The stock is still reasonably priced as the shares trade right around book value. Prudential is working to close its acquisition of Polonia Bancorp PBCP that will take the bank to about $850 million in total assets. The bank has seen a spike in non-performing assets as a result of a series of construction loans to one borrower that have soured, but the bank has said there is sufficient collateral that they have not had to mark down the loans. Prudential has plenty of capital with an equity-to-assets ratio of over 18 so the problem loans should not be an issue that is too damaging if they have to take over the project. The Philadelphia market is crowded and in need of continued consolidation so I would not be shocked to see this bank taken over in the next year or so. The post-conversion change of control limitations expired Monday so this bank could come into play in 2017.
Seidman was also a buyer of Stonegate Bank (SGBK) in Florida. I talked about this bank last week when I reviewed fellow activist Joseph Stilwell's filing. While the stock is rich on traditional metrics it has become a great growth story as CEO David Seleski and his team, have done a fantastic job expanding the bank's Florida franchise via acquisition and organic means. The bank is in solid financial shape with an equity-to-assets ratio of over 11 and non-performing assets that are just 0.49% of total assets. While they are committed to continuing to grow the bank investors should keep in mind that everything in Florida is a potential takeover target.
He was also a buyer of Community Financial (TCFC) in Waldorf, Md. Waldorf has gone from being a sleepy little southern Maryland town to a bustling Washington, D.C., suburbs since I first drove through the town with my parents a few decades ago and the bank should benefit from the town's continued growth. On the most recent call James Burke, the bank's president, was very confident about his bank's growth telling investors, "The company's current year loan growth of 19.2% (annualized) to $1,051.4 million as of Sept. 30, 2016, on a stable operating expense base has increased the company's operating leverage. Based on our loan pipeline, we are optimistic that our interest-earning assets will continue to grow at a rate faster than expenses through 2017. The stock is priced at about 1.1x book value, so there is plenty of upside particularly if a larger bank decides they want an entry into the southern Maryland suburban markets."
Seidman's filings are must-read for investors who want to profit from the ongoing consolidation in community banks. These banks have to grow or sell, and either outcome should lead to a higher stock price and outsized profits for patient investors.