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9 Widely Overlooked Small Banks That Offer Big Profit Potential

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9 Widely Overlooked Small Banks That Offer Big Profit Potential

Last week we talked about riding the coattails of bank stock activists to earn outsized profits in the stock market.

A study released by analysts at Sterne Agee as well as the practical experience of investors in the sector tell us that the presence of an activist in a small regional or community bank often leads to stock buybacks, higher dividends and often an outright sale of the bank at a premium price.

Last week saw the filing of 13F forms with the Securities and Exchange Commission so we can see exactly what the bank stocks specialist activists were buying in the third quarter of the year.

Joseph Stilwell

Joseph Stilwell has been of the more successful activist investor in the sector over the past two decades. His new bank stock purchases in the third quarter of the year were:

River Valley Bancorp (NASDAQ: RIVR) is a 16 branch bank operating in Southeastern Indiana and Northern Kentucky with about $500 million in assets. The shares trade at 1.04 times book value and the equity to assets ratio is 9.03. Nonperforming assets at the bank are currently 2.56 percent of total assets

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Peoples Financial Corp (NASDAQ: PFBX) of Biloxi, Mississippi has 18 branches and $749 million in assets. The bank has two large problem loans that are causing problems and non-performing assets are 5.93 percent of total assets. The equity to assets ratio is 13.14 and the shares trade at 63 percent of book value.

Clifton Bancorp (NASDAQ: CSBK) of Clifton, New Jersey has 16 offices with $1.1 billion of assets. Nonperforming assets are just 0.39 percent and thanks to the second step conversion offering earlier this year the equity to assets ratio is more than 20. The stock currently trades at 90 percent of book value.

Stewardship Financial (NASDAQ: SSFN) of Midland Park, New Jersey has 13 branches and $671 million of total assets. Nonperforming assets are just 0.97 percent of total assets and the equity to assets ratio is currently 9.36. The stock is trading at 50 percent of book value.

Lawrence Seidman

Lawrence Seidman is also a New Jersey-based bank stock investor with more than two decades experience as an activist investor. His new bank stock purchases in the quarter were:

Sunshine Bancorp (NASDAQ: SBCP) is based in Plant City, Florida and has five branches with $222 million in total assets. The bank completed its mutual conversion IPO earlier this year and has an equity to assets ratio of nonperforming assets is 2.61 percent of total assets and the stock trades at less than 85 percent of tangible book value post offering.

Blue Hills Bancorp (NASDAQ: BHBK) of Boston, Ma also completed its conversion for a mutual thrift to stock ownership this year and the equity to asset ratio is 23.6. The bank has nine branches and $1.6 billion in assets. Nonperforming assets are just 0.27 percent of total assets as of the end of the third quarter. The shares trade at 96 percent of book value.

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Malvern Bancorp (NASDAQ: MLVF) is based in Paoli, Pennsylvania and has seven branches with $553 million in assets. The equity to assets ratio is 11.9 and non-performing assets are just 0.82 percent of total assets. The shares currently trade at 94 percent of book value.

PL Capital

PL Capital has been of the more successful bank stock activists of the past decade. The principles so the fund have backgrounds in banking and audit and are adept of spotting undervalued bank stocks, and they are not afraid to take an activist approach when they spot an opportunity. The firm had two new purchases in the third quarter:

Independent Bank (NASDAQ: IBCP) of Ionia, Michigan has 74 offices with $2.2 billion of assets. The bank has an equity to assets ratio of 11.44 and non-performing assets are just 1.21 percent of total assets. The stock currently trades at 1.1 times book value.

Citizens Financial Group (NYSE: CFG) had its IPO earlier this year after being spun out by Royal Bank of Scotland. The bank has 1,240 branches with more than $133 billion in total assets. The equity to assets ratios 14.6 and nonperforming assets are only 0.75 percent of total assets. The stock trades at book value at the current price.

History tells out that investing in bank stocks with a strong activist presence can lead to market beating returns. Riding the coattails of three leading bank stock activists could help investors to earn high returns over the next several years.

Tags: Activist Investing

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