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Napping is supposed to be really good for you. Every few weeks you come across yet another study that shows how napping once or twice a week in the middle of the day can reduce the risk of heart attacks or strokes or a different one that highlights that longer naps can improve cognitive performance. This might be one of the reasons some cultures have a tradition of afternoon naps in the form of the siesta in Spain, the Kalo Mesimeri in Greece and the Riposo in Italy.
Naps are however not looked upon kindly everywhere and especially not in the hard charging culture of corporate America. David Einhorn’s nap schedule made its way into a Wall Street Journal article discussing Greenlight Capital’s underperformance last decade. One of the more egregious examples of someone being called out for napping can be found in a two sentence letter an activist investor sent to shareholders of Harvard Illinois bank in 2014. The letter stated:
Dear Fellow Shareholder,
Below is a picture taken at last year’s annual shareholder meeting of our Bank’s Chairman. None of the other board members bothered to wake him up.
If you, like me, believe it’s time to bring a fresh influence to our Bank’s board of directors, please vote the GREEN proxy card for Mark Saladin.
Sincerely,
Joseph Stilwell
The punch line was that he was sleeping under a sign that said “Winning with Teamwork”. The company responded a week later stating:
“It is our understanding that this picture was taken while the annual meeting was adjourned and not during the annual meeting itself. In future filings, please avoid issuing statements in your soliciting materials that directly or indirectly impugn the character, integrity or personal reputation or make charges of illegal, improper or immoral conduct without factual foundation.”
Who is Joseph Stilwell? Mr. Stilwell, formed the activist fund Stilwell Value in 1993 and invests in financial companies including banks. The firm managed $231.5 million as of March 2023 according to its latest ADV filing and Stilwell Value’s 13-F portfolio value was $133 million.
I came across Joseph Stilwell last week when reviewing insider transactions by insiders of regional banks. I was specifically looking for banks where the insiders were buying, the bank was buying back its own stock and total deposits in Q1 2023 went up. If a 10% owner or independent director was buying stock, that was another positive signal. I find that independent directors with an investment background provide a stronger signal than company management that might not perceive macro environmental factors the same way investors would.
Given the current turmoil, it might be too early to invest in regional or community banks unless it happens to be one that received a sweetheart deal to acquired another troubled bank. I wrote about one such regional bank for our spotlight idea in the May 2023 Special Situations Newsletter.
Reviewing one of Stilwell’s recent 13D filings, they have been involved in over 70 activist campaigns since 2000. These campaigns have resulted in changes to the Board of Directors as well as CEOs stepping down. What I found fascinating after reviewing Mr. Stilwell’s insider purchases and the latest 13-F filing was his long holding period and concentration.
Stilwell got involved in Kingsway Financial Services (KFS) in 2008, the CEO and CFO were fired in 2009 for “incompetence and insubordination” and all legacy directors had resigned from the board by the end of 2009. Mr. Stilwell was appointed to the board and he purchased shares for more than a decade at prices ranging from the low two dollars to the mid-five dollars with very few sales in-between. As of the end of 2022, KFS represented 43% of Stilwell Value’s 13-F portfolio. He finally started selling shares earlier this year after the price had eclipsed $8 per share.
From his form 4 filings, I can see that he is currently buying Sound Financial Bancorp (SFBC), a small Seattle-based bank with a market cap of $96 million and $1 billion in assets. The bank saw its deposits increase 4.1% in Q1 2023 and reported an annualized net interest margin (NIM) of 4.01%. He is also buying shares in Peoples Financial Corp (PFBX) a Biloxi, Mississippi-based bank that trades over the counter.
In the fourth quarter of 2022 Stilwell sold a significant part of their stake in OFG Bancorp (OFG), a holding company with a market cap of $1.2 billion that operates Oriental Bank, Oriental Financial Services and Oriental Insurance. OFG was Stilwell’s second largest position and even after the sales, represents more than 19% of their 13-F portfolio.
There were also some uncharacteristic investments with the fund picking up 80,000 shares of online car dealer Caravan (CVNA) and 50,000 shares of Lyft (LYFT). They also picked up call options on Carvana. Lyft is down 4% year-to-date while Carvana is up 56% this year.
We recently included Stilwell Value in the list of value focused gurus we follow on InsideArbitrage but given the firm’s history, it deserves to be on the list of activist firms as well.
I look forward to reviewing their next 13-F filing, which should be out sometime in the next couple of weeks. Given current market conditions, which gurus or professional investors are on your radar?
