NEW YORK ( Real Money) -- Bank mergers and acquisitions were outlined by FJ Capital in a recent report, which listed the buyers, their targets and where these transactions were taking place around the United States. The report found that banks targeted for buyouts tended to be smaller in size with excess capital. Another common thread among these smaller banks included having a difficult time generating large profits because of excessive regulatory costs and a slow, grinding economic recovery.
This information was fed into a stock screener to develop a list of institutions that fit the profile of a likely takeover candidate. The list went through another filter, taking into account those banks that also have strong activist investors, or excessively smart money as shareholders. The list was sorted again, based on banks trading below book value.
In the end, it produced a sizable list of banks but, as one would expect, most of these institutions were very small.
One bank, however, is a favorite -- Atlantic Coast Financial (ACFC). The bank is based in Jacksonville, Fla., where strong M&A activity is underway in the Sunshine State. In 2013, it raised capital to shore up its balance sheet and has done an incredible job cleaning up its loan portfolio. Atlantic Coast's non-performing assets as a percentage of total assets has fallen to 1.16% today from nearly 6% in the first quarter of 2012.
The bank has an equity-to-assets ratio of 10.11, a number that has almost doubled in the past three years following its capital raise. Atlantic Coast reported earnings on Wednesday and the results were pretty good. Its return on assets was a paltry 0.22%, but its return on equity reached 2.14%.