Activist investor Lawrence Seidman is known for his ability to spot opportunities in the banking sector, either by finding an acquisition target or by convincing a bank's management team to change its approach. Seidman has acquired more than a 5% stake in banks 43 times, according to Barron's, and has an average return on those investments of almost 52%.
One good investment strategy can be to follow the moves of activist investors who know certain industries well -- and many of them are required to tell us. Every quarter, you can get an idea of which stocks large investors are buying and selling through their 13F reports filed with the Securities and Exchange Commission.
One thing to note about these reports is that, while they tell you what stocks an investor bought and sold in a given three-month quarter, they don't tell you when. For instance, Berkshire Hathaway bought airline stocks in the first quarter before disclosing at its annual shareholders meeting that the company had dumped its entire stakes in those companies in April. So keep in mind that you can't determine the timing of the move -- but these quarterly reports from activist investors can still be useful guidance. Let's see what Seidman was up to in the first quarter.
1. He bought more than he sold
One quick note of Foolish warning as we start: Some of these stocks are tiny -- well below The Motley Fool's usual $200 million market cap cutoff. I'm including them for what we can learn about Seidman's investing process, but they should be handled with care.
During the period of Jan. 1 to March 31, Seidman actively bought bank stocks. Overall, he only sold off two stocks entirely and purchased nine new stocks. Now, again, we don't know when he bought those stocks or at what price, so we don't know if he came to regret any of those decisions in late March after the low point of the coronavirus selloff. But a lot of these banks Seidman bought could be potential acquisition candidates. While mergers and acquisitions (M&A) will likely pause for a while, bank consolidation should resume once the coronavirus subsides, so now could be a good time to investigate these stocks.
Here are the stocks Seidman took new positions in:
- Citizens Financial Group
- Civista Bancshares
- ConnectOne Bancorp
- HarborOne Bancorp
- Investors Bancorp
- Northeast Bank
- Sterling Bancorp
- Waterstone Financial
- Wintrust Financial
Of his new holdings, Seidman took larger positions in HarborOne Bancorp and Sterling Bancorp.
Seidman purchased 328,839 shares of HarborOne, giving him roughly 0.60% of outstanding common shares. HarborOne is a $4.1 billion asset community bank that operates heavily in Massachusetts, Rhode Island, and New Hampshire. In August 2019, the company completed a second-step conversion, raising $304 million in a new offering by selling more than 31 million shares, which took the company fully public after a partial initial public offering in 2016. As of Wednesday morning, HarborOne was trading at 72% of book value.
Next, Seidman took aim at the much larger, nearly $30 billion asset Sterling Bancorp, a regional bank in New York. His purchase of 309,264 shares in the company gave him about 0.15% of outstanding shares. The purchase is a little bit larger than the community banks Seidman normally seems to target. But many believe regional banks could be ripe for consolidation. (Interestingly enough, Seidman also purchased 20,000 shares in Citizens Financial Group in the first quarter, a very large regional bank that some think could be a potential acquisition target.) As of Wednesday morning, Sterling traded around 58% of book value.
2. Seidman increased his position in four banks
Seidman increased his position in four banks during the first quarter of the year, fairly significantly in three of them.
His share count in PB Bancorp increased about 35,000 shares in the first quarter to more than 157,000 shares overall. However, Centerville Bank in Rhode Island announced in October of 2019 that it would purchase PB Bancorp, which is in Connecticut. The deal only just got completed on April 30 after the first quarter ended.
Seidman then upped his stake in Peapack-Gladstone Financial to 124,931 shares, more than doubling his position from the fourth quarter of 2019. Peapack-Gladstone is a $5.8 billion asset bank based in New Jersey.
Next, Seidman more than doubled his share count at Pioneer Bancorp and now owns roughly 243,000 shares. A mutual holding company, Pioneer only went public less than a year ago. The company is based in Albany, New York, and currently has about $1.5 billion in assets.
Lastly, Seidman increased his stake heavily in Provident Bancorp from 37,838 shares to close to 200,000, more than a 400% increase. Provident, a $1.2 billion asset institution headquartered in Massachusetts, is not your traditional community bank. In recent years, it has focused on international commercial financing for foreign companies purchasing U.S. capital equipment and services, as well as working capital lines of credit to U.S. companies with foreign accounts receivable. The bank also recently completed a second-step offering like HarborOne, raising gross proceeds of $102 million by selling more than 10 million shares, which made the stock price cheaper.
3. He sold two banks and reduced his position in another
During the quarter, Seidman sold his entire position in Old Point Financial and Select Bancorp. He had owned just 7,616 shares in Old Point, a $1.1 billion asset bank based in Virginia, and more than 83,000 shares in Select, a $1.2 billion asset bank based in North Carolina. Since early March, Old Point's stock has declined by roughly 46%, while Select's stock is down almost 37% since late February.
Seidman only reduced his position in one bank during the quarter. He sold off 75,000 shares in CBM Bancorp, leaving him with 25,000 shares remaining. CBM Bancorp, the holding company of Chesapeake Bank, is a very small, roughly $228 million asset bank based in Maryland.
I'm a little surprised to see Seidman sell this stock, considering CBM is a mutual savings company that went public in May of 2018. These mutual savings institutions have a high rate of getting acquired once they are eligible, which is usually three years after an IPO, although it can vary. This bank will be eligible for acquisition in May of 2021. If Seidman sold CBM early in the quarter, he probably made at least a decent return on his investment. Perhaps he didn't think the bank would fetch a big enough premium in a potential acquisition, but I would still be surprised if this bank does not eventually get acquired because it is very difficult for banks this small to survive today.