After last week's madness, it was nice to have a quiet weekend before the great rebuild begins this week. A Dumpster is being dropped off this morning and I am looking forward to lots of noise and clutter.
It was not a quiet weekend in the news with failed coups, police shootings and vice-presidential madness dominating the airwaves. For a political junkie like me, the GOP convention is going to be high theater and I expect lots of low comedy as well before the week is over. With all the madness swirling around this week, I am just going to keep my head down as the week starts and look for more banks to buy in the nation's most business-friendly states.
Washington comes in as the sixth most business friendly state, thanks in large part to high scores for technology and innovation as well as a strong economy and easy access to capital. It has been a long time since I was out in Washington, but I do have some great friends out there and have become a fan of the Gonzaga basketball team as a result. I also own a few banks based in the state that should continue to benefit from the business-friendly atmosphere.
First Northwest Bancorp (FNWB) operates 10 branches with just shy of $1 billion in assets in northern Washington. First Federal underwent its conversion from a mutual thrift to a stockholder-owned institution in January 2015 and has been a favorite holding since the offering was completed. It still has most of the cash and the equity to assets ratio is over 13. Nonperforming assets are just 0.4% of total assets, so the loan portfolio is in solid condition. The bank services the north Olympic Peninsula region of Washington and is the only community bank headquartered in the region. The loan portfolio is heavily tilted toward residential loans but it does have a decent amount of commercial real estate and multifamily loans on the books as well.
First Northwest has a shareholder list that looks a lot like a bank investors hall of fame. PL Capital, Joseph Stilwell, EJF Capital, Michael Price, Seizert Capital and Wellington all have a position in the bank's shares. That could eventually lead to some pressure to deploy capital to benefit shareholders by buying back additional stock or initiating a dividend payout. Either would be fantastic for us as long-term shareholders of the bank. The stock is trading at just 90% of tangible book value, so it's a great buy for patient investors at the current price.
I also own Anchor Bancorp (ANCB) in southern Washington state. This bank has 20 branches and a little over $400 million in assets. It is also in great financial shape with an equity to assets ratio of almost 14 and nonperforming assets that are just 0.73% of total assets. The loan portfolio is tilted toward commercial real estate and multifamily housing and about 20% of it is in single-family housing to residents of the business-friendly region. The stock trades at 96% of book value, so it is cheap at the current price.
At least one investor thinks the stock is too cheap. Activist Stilwell owns 9.8% of the bank and thinks it should be sold to maximize shareholder value. In a 13d filed last week, he revealed his latest letter to the board. He wrote: "This letter serves to formalize our June 15 meeting and to re-emphasize our belief that Anchor should be sold. When we met with you two years ago, your plans to work diligently and improve bank operations sounded reasonable to us. We believed you when you promised you were making sincere efforts to position Anchor to maximize shareholder value. We understand that you have done your very best. However, continued poor performance highlights the reality that Anchor should now be sold. At our June meeting, your statements on further improvement to Anchor's return on equity by the end of 2018 sounded unrealistic to us. In our view, it is not in shareholders' best interests for management and the board to work 2½ more years toward a marginally better, but still inadequate, ROE. Now is the time for Anchor to find a suitable merger partner."
Stilwell has had a great deal of success over the years in pushing back into a sale, so I will not be surprised to see Anchor Bancorp announce a merger in the months ahead. A deal could be worth something on the order of $33-$35 a share based on recent deal multiples.