Another bank stock fund has filed its 13F forms early and I want to review its buying in the third quarter. I have made money over the years tracking 13D and 13F filings and the biggest returns have come from coat-tailing bank specialists and activists on their community bank buys.
Clover Partners is a Dallas-based firm that has been around since 1999. The firm is very much off the radar and does not appear to give interviews or seek publicity. But looking at its 13F and 13D filings over the years, Clover appears to have had a great deal of success. Clover is on my "gee, I would really love to talk to these guys " list but I am afraid I would have to set up shop outside its office to achieve that particular goal. Clover was fairly active in the quarter, with 15 new buys.
The firm was a buyer of shares of Financial Institutions (FISI), the parent company of Five Star Bank in Warsaw, N.Y. The bank has been working to expand its commercial and business banking presence in western New York with a focus on Rochester and Buffalo and it is having some success.
At the end of the third quarter, business loans and commercial real estate lending reached record levels. The shares are a little high for me at 138% of book value but the bank is growing at a decent pace and I could be very interested in a market decline.
Clover was also a buyer of BankFinancial (BFIN) during the third quarter. The Burr Ridge, Ill.-based bank has a shareholder list that looks like a bank stock activists' Hall of Fame. The bank has been struggling to grow and CEO Morgan Gasior didn't sound all that upbeat on the recent conference call about the prospects for 2016.
The stock is trading at 117% of book value and I won't be shocked to see a merger announcement before too much longer. Gasior told shareholders that "you're not really looking at a particularly strong growth in the United States next year. GDP third quarter was 1.5%. We would be happy, let's put it this way, we would be happy if we saw upper single-digit growth in all of our commercial segments next year."
Given Clover's Dallas location I guess I shouldn't be surprised to see the firm adding to its stake in a Texas bank. I have been waiting for LegacyTexas Financial (LTXB) to drop to a much lower multiple of book value. But I assume the folks at Clover know a lot more than I do about local banks and are willing to pay up for them. LegacyTexas has been growing at very high rates, with earnings growth averaging more than 50% over the past five years.
There is a good chance we see M&A activity pick up in Texas and with the stock trading at 1.8x book value Legacy has a solid currency to acquire additional assets and earnings at a decent price. The bank is looking to grow in the Dallas market via acquisitions and I expect it to be very active in 2016 and beyond.
Clover Partners also added to its position in Independent Bank Corporation (IBCP). This is another bank that has strong activist and bank specialist involvement. More than 25% of the bank is owned by these bank-focused funds so management is under a microscope from a group committed to higher shareholder value.
The bank has 61 branches in the Lower Michigan Peninsula with about $2.4 billion in total assets. Management has been focusing on growing market share in its region. According to the most recent FDIC reports, the bank gained market shares in 18 of the 21 markets it serves. They have also been buying back stock and have repurchased about 2.9% of the bank and expect the current 5% repurchase plan completed by the end of the year.
The stock has been pretty strong in the past six months and is a little rich for me at 1.36x book value. It does have a very attractive franchise and I think it would fetch more than the average 1.3x book value in a merger, but I will wait for a decent pullback in the stock to consider following Clover into the stock.
Clover Partners has been around for a long time as a small-bank stock activist and investor and I have stolen many strong ideas from its 13D and 13F filings. It is worth your time to go to sec.gov and review the entire filing.