|Shares Out. (in M):||3||P/E||0.0x||0.0x|
|Market Cap (in $M):||45||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||0||EBIT||0||0|
This is a tough week to submit an idea! EBML is touting an 8 dollar stock with the potential to earn $40 in eps, with a patented product that can trick your brain into liking diet soda. Katana’s write up is getting traction in the WSJ for a product that can cut your phone bill by 90%. I offer nothing quite as exciting, but remind myself that the world needs ditch diggers too.
I am recommending Anchor Bancorp as a long, symbol ANCB. Anchor Bank, formerly Anchor Mutual Savings Bank, is a relatively small bank in Lacey, Washington with approximately 400 million in assets and a market cap of 42 million. They file with the SEC, and their cert number with the FDIC is 28454.
The really short version is that there is some hidden value here in a bank that I think is an eventual takeover candidate.
With a last price of 18.25, the stock trades at approximately 85% of tangible book value. Stock has crept up a little bit this week, likely the result of a American Banker article published early this week highlighting the two activists involved.
Non Performing Assets (NPAs) are elevated at around 5.5% of total assets. This number includes Troubled Debt Restructurings or ”TDRs” (aka “performing non performing”). TDRs represent loans where below market concessions are made to the borrower. Most common types of concessions are lowering the rate or the LTV or making concession based on cash flow specific to the collateral or global cash flow. There is some reason for optimism when considering the 5.5% NPAs: Roughly half of the NPAs are TDRs (Which the bank is likely making a profit on). Roughly a quarter of the NPAs are OREO (which tends to be the final stage for an NPA, indicates a fresh appraisal, and typically means that the OREO will be sold sooner rather than later). The loan loss reserve is about 25% of total NPAs, and 80% of non-performing loans.
Tier 1 13.5%. Tier 1 Risk-Based 17.7%. Total Risk-Based Capital 18.5%.
Anchor entered into a Cease and Desist with the FDIC in 2009. Order was terminated on 9-5-12 as a result of steps Anchor took in reducing the level of classified assets and improving the condition of the bank.
Two activist investors have voiced their opinions on the situation. One wants Anchor to sell now. One wants Anchor to sell later. More on those guys later. Anchor converted on January 25th 2011, so it just celebrated the critical 3 year anniversary. Converted thrifts can not sell until three years after a conversion.
Not so obvious hidden asset:
Due to prior losses, Anchor has a valuation allowance of 8.9 million against their Deferred Tax Asset. If they can achieve and demonstrate consistent profitability their auditors will allow them to remove the valuation allowance, thus realizing the full value of the deferred tax asset. This would add approximately 3.50 to the current book value of 21.16 for an eventual pro forma book value of 24.50.
Back to the activists. One 13D filer, Joel Lawson, doesn’t want to wait to see if ANCB can get the DTA back. The other, Joseph Stillwell, seems to think it might be worth waiting to see if the DTA can be recaptured. Stillwell thinks the nation is overbanked and is quite willing to assist with this particular problem by strongly urging most of the banks he invests in to merge. So it is somewhat rare that he is suggesting that it might be better to wait.
I am in the Stillwell camp on this one. There has been a steady resolution of problem assets and the bank is shrinking appropriately by running off high cost deposits, and closing some branches. My educated guess is that profitability will be achieved in 2014, and the DTA will be “captured” in 2015. By then book value will be close to 25.00, and I think a really clean Anchor Bank could get 120% of book value in a takeover, or approximately 30$ per share in mid 2016. At current prices this equates to an IRR of 24%. The conjecture on ANCB is that they will sell once cleaned up, and I think Stillwell will play this one like a fiddle. Note that a bank with 400 million in assets is in a sweet spot for M&A. Not too big and not too small, but just right to move the needle for a 1 or 2 billion dollar bank. Especially attractive is a bank that has been slowly shrinking, as the higher cost deposits are weeded out in the deleveraging process. So perhaps 120% of book value turns out to be conservative.
Now hypothetically they might continue to struggle with high NPAs and associated costs and might never recapture the DTA and then shareholders, including Stillwell, might force a sale. In that case I think we can get 90% of book value, or around 19$.
So heads we win, tails we have a still positive but undesirable IRR.
That is my idea. I concede that I probably won’t get a check for $5,000 from VIC on this one, it won’t be referenced in the WSJ, and it won’t make a diet soda taste better - but I view it as a good risk reward nonetheless. I’m partially hoping it generates a good thread on other banks on the verge of capturing their DTA, as I think this could be a good investment and trading theme in 2014 & 2015 as community and regional banking continues to recover. Don’t all jump in at once (like I did with SNMX), it is a thinly traded stock perhaps only suitable for small funds and personal accounts.
|Subject||Re: DTA Recaptured|
|Entry||06/05/2015 12:13 PM|
bronco - are you still following this situation? was nice they got the DTA. i was not happy that they haven't started buying back shares - maybe it takes some time to get approval. the business continues to suck - but the rebound in credit seems to be complete. i'd love for them to buy back 10% of the float around 22-23 if they could and then sell the company. that being said, i doubt they get a big premium to book (if at all).
|Subject||Re: Re: DTA Recaptured|
|Entry||07/06/2015 09:20 AM|
bronco - seems like everything is going to plan here. they just dividended up $5mm to the holding company and looks like it will go to share repurchases. I have wanted them to buy back 10% of the company in the 22-23 area and then sell the company - and i think that is what they are planning on doing.
The question is what type of multiple they can get in a sale. I would expect 1.10-1.25x tangible book value (assuming they are able to take out 10% of shares which is all excess capital).
Hard to see this bank around in 2017.
|Subject||Re: Re: Re: DTA Recaptured|
|Entry||07/06/2015 11:44 AM|
Hi Spike, just saw this comment and realized you posted a comment on June 5, which I missed. My guess would be 1.10 to 1.25 as well. In general banks do a terrible job of selling stock below book value, and buying it above book value. Bankers love their capital, and when they actually do buy it below book value to me it signals that the end is near. The accretive pro forma book on a per share basis is nice, but they will only get paid $ for $ on any excess capital - so a buyback really should add nicely to the return. Like many of these situations, it seems like the main thing that can go wrong is for the bank to miss the window to sell in this cycle. Fingers crossed.
|Subject||Re: Re: Re: Re: DTA Recaptured|
|Entry||07/06/2015 12:04 PM|
i assume they get 1.15x tangible book value - (and that assumes they do take out 10% or so of the float in the next 12 months). anything above that is gravy.
they have probably like 10 dollars of excess capital here - and i just don't see how they are going to use it - loans are not really growing.
a 28 dollar take out price provides for a decent accretion to a potential buyer in a year or so. decent upside but risk is this just being dead money and as you say missing the sale window.
there is zero reason for this bank to be around.
|Subject||buyback - getting the bank sold|
|Entry||07/06/2015 01:33 PM|
Stilwell filed a timely update to his 13-D on the 23rd of June and has been involved in the situation for over a year now. Our sense is also that the buyback happens as best it can given the liquidity and that the bank is then sold.
Stilwell 13-D on June 23, 2015
|Subject||Re: buyback - getting the bank sold|
|Entry||07/07/2015 11:00 AM|
there are some chunky shareholders here so hopefully they can get a few blocks done.
mrsox - what exit multiple are you thinking they can get?
|Subject||Re: Re: buyback - getting the bank sold|
|Entry||07/07/2015 11:43 AM|
Somewhere between 1.1-1.15x NVSL just got done at 1.26x book.
|Subject||Re: Re: Re: buyback - getting the bank sold|
|Entry||07/07/2015 01:39 PM|
nvsl better markets and they took cash so the better premium. but i think we are all kind of triangulating on the same 1.05-1.15 range.
i think we all need to call Jerry and tell him to spend more time with his grandkid and sell this bank.
|Entry||07/28/2015 09:47 AM|
company announced a buyback for 5% of shares outstanding. They have plenty of cash and capital to do more.
They also reported earnings which were better than i expected which is a plesant surprise.
Bronco this is all going according to plan
1) finish cleaning up credit
2) get out from regulatory issues
3) get DTA
4) announce share buyback
5) sell the bank
i'd love for them to buy back 10-20% of the shares outstanding and then sell for 1.1x $27 book value (in 12-15 months).
thanks again for the idea.
|Subject||Re: buyback announced|
|Entry||07/28/2015 12:16 PM|
It has been like watching grey pain dry recently but today's news is welcome. Wasnt sure anyone was watching this one, thanks for the comments. In the mean time, M&A valuations are going in the right direction (at least for now).
|Subject||another activist shows up|
|Entry||09/29/2015 09:32 AM|
|Subject||Re: another activist shows up|
|Entry||10/14/2015 02:40 PM|
he's been in the stock for a while so not technically new.
i think it's important to vote for him. i think the bank won't seat him but it will show management what shareholders want.
i think management thinks they can buy another bank and become a bigger player. i think it's absurd given their metrics and performance.
If Joel loses i bet these guys try to buy someone. if he wins, they put themselves up for sale (eventually).
|Subject||Re: Re: another activist shows up|
|Entry||10/27/2015 11:37 AM|
So it appears Joel got a significant percentage of the vote. Management's nominations got less than 25% of the shares outstanding to vote for them.
Joel will get the right to appoint one board member (he recommends two, company picks one) and the company will form a committee for strategic alternatives.
Hard to see the committee not selling if they get a reasonable price. Hopefully the company can soak up lots of shares in the 22-23 area and then sell out at a reasonable multiple in 2016.
|Subject||Re: Re: Re: another activist shows up|
|Entry||10/27/2015 12:22 PM|
Hi Spike, was just about to post the same thing. Establishing a special committee seems like a pretty big acknowledgement by the ANCB board.
|Subject||Re: Re: Re: Re: another activist shows up|
|Entry||10/27/2015 01:11 PM|
they kind of telegraphed it during their earlier press release which said something like the board shares some of joel's concerns.
only getting 25% of your shares to vote for you has to send a real message to the BOD. That is unheard of in these small local banks.
now it's just a matter of timing and price they get.
|Subject||Re: Re: Re: Re: another activist shows up|
|Entry||11/19/2015 04:19 PM|
pretty much think they have thrown in the towel. i would assume they hire their bank and get this sold pretty quickly. it should not take long.
1.15x tangible book is $30 a share. i believe that is where many were getting to here in a sale.
|Entry||12/16/2015 12:17 PM|
she seems pretty good and they have formed the special committee. Bronco the process is working out exactly according to plan. Thankfully bank valuations are rising and M&A is still pretty good. I would be very suprised if this wasn't sold by the 2nd quarter of 2016.
|Subject||new buyback announced|
|Entry||03/11/2016 02:46 PM|
Anchor Bancorp (“Company”) (ANCB), the holding company for Anchor Bank (“Bank”), today announced that its Board of Directors has authorized the repurchase of up to 77,500 shares of the Company’s common stock. The stock repurchase program follows the Company’s completion of a repurchase program in 2015 and its repurchase of 50,000 shares. In connection with the additional stock repurchase plan, the Company’s Board of Directors also adopted a pre-arranged stock trading plan for the purpose of repurchasing shares of the Company’s common stock in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934. Repurchases under the Company’s 10b5-1 plan will be administered through an independent broker. Repurchases are subject to the requirements of the Securities and Exchange Commission as well as certain price, market volume and timing constraints specified in the plan.
|Subject||Re: Re: director announced|
|Entry||03/11/2016 03:32 PM|
hi Bronco - thanks for the color from your friend.
a few thoughts - look his shareholders want him to sell and it was made very clear with the shareholder vote - which was one of the worst losses for a bank ceo that i have seen.
my sense is he's not unhinged but i have never met him in person. He can be rude a bit - condesending is my word (undeservingly full of himself perhaps?).
what was shaw's rational for staying independent?
|Subject||Re: Re: director announced|
|Entry||03/11/2016 03:44 PM|
the recent stock grant to executives was the "bribe" to get him to sell. i could understand his frustration of not wanting to sell until he has stuff in place to get him paid.
|Subject||Re: anyone still long here?|
|Entry||10/20/2016 10:09 AM|
We have added to our position. This Company is on a short leash with the Stilwell Group if you read between the lines of their Sept 6 standstill. This bank has the potential to be sold for a substantial premium and it is not really up to Jerry anymore.
|Subject||Re: Re: anyone still long here?|
|Entry||10/21/2016 04:19 PM|
i will read the standstill again. i just don't see a big premium. i hope i am wrong.
|Entry||12/02/2016 01:55 PM|
i would think the Trump win helps potentially get a deal done here just as the buyers have a better currency now and a deal would look optically better to the BOD.
however, the resignation of the activist appointed board member is wierd. anyone have color on this resignation? probably means nothing is close to getting done.
it also pushes back the timetable for shareholders to control the board.
|Subject||anyone still following this one?|
|Entry||02/01/2017 10:59 AM|
price seems to have run up a bit (like all financials). performance still seems blah/weak. anyone speak to Jerry recently?
|Subject||Re: anyone still following this one?|
|Entry||02/14/2017 11:03 AM|
i might be talking to myself here but i spoke with Jerry. I also spoke with a larger bank generally in this area.
1) strategic review is ongoing. i think they are having a tough time finding someone to buy this at an acceptable price.
2) he was surprised at the director resignation. He said she had a child recently and changed jobs and so perhaps her new firm didn't allow her to serve on a board.
3) they aren't buying shares per the shareholder aggreement. It expires in March. i think he doesn't want another proxy fight. He might not have any choice.
4) construction loans shouldn't get much bigger. He's trying to keep as much of the term loan as possible. He might be the dumb money here.
this feels like a low premium deal at this point. i also spoke to larger peers. i think it's a well known fact that these guys have been shopping themselves for a while. this one larger peer basically said it will come down to a financial decision here - how much accretion a buyer can get. nobody wants these deposits. he also said in a roundabout way that these deposits aren't that valuable.
all in all a few disappointing calls on this name. i hope they put us out of our misery and take 31 bucks and move on.
|Subject||Re: Re: anyone still following this one?|
|Entry||02/15/2017 04:15 PM|
Spike, I still own some. Thanks for the feedback from Jerry. He appears to be a pro at explaining all the reasons he hasnt done what is in the best interest of his shareholders. He should be spending his time replacing his CDs with relationship based core deposits - not explaining his way out of things.
|Subject||Re: Re: Re: anyone still following this one?|
|Entry||02/21/2017 03:49 PM|
bronco - agree with you. i am surprised that the big shareholders here haven't just completely replaced the board and fired him.
This is feeling more and more like either a dud sales process (this puppy has been shopped for at least 6 months if not longer) or a low premium deal. i think most shareholders would gladly take 30 today and move on.
i have been less convinced of a big take-out price for a long time here given the bad demographics. we sold most of our shares back when it popped the previous few times. but i nibbled after the elections a bit.
we are coming up on 7 months from the exploring strategic alternatives phase so we probably hear something in the next few months. i think they start buying back shares in 2q if there is no deal.
|Subject||17 month CD special|
|Entry||03/08/2017 02:59 PM|
ancb is offering 1.7% rate for a 17 month CD. heritage bank is offering 18 month CD for 25 bps. I think Timberland bank is paying 20 bps for a 1 year CD.
i don't fully understand why they need to pay this much for deposits.
|Subject||Re: Sold @ $25.75|
|Entry||04/13/2017 03:49 PM|
not a bad risk arb situation at this price. 4.4% return for 4-5 months (10-11% annualized). This should be a straightforward deal closing.
|Subject||Re: Re: Sold @ $25.75|
|Entry||04/13/2017 04:02 PM|
pretty crappy price though, sub tangible book value by the time the deal closes. nobody wanted this asset unfortunately.
|Subject||Re: arb spread|
|Entry||04/17/2017 10:48 AM|
microcap, illiquid and this makes it complex to arb:
The exact number of shares to be issued and the exchange ratio will be determined based upon the average of the volume-weighted price of Washington Federal common stock for the twenty (20) trading days ending on the fifth trading day immediately preceding the closing date, subject to a negotiated collar.
|Subject||Re: Re: arb spread|
|Entry||04/17/2017 02:11 PM|
i guess but you are getting 25.75 in most scenarios. i would have thought it traded to 25.00 but perhaps this won't happen for another 2 months.
|Subject||Re: Re: Re: arb spread|
|Entry||04/17/2017 03:02 PM|
It's not about getting less than $25.75 it's about locking in $25.75 and that's a complicated process w/ a 20 day VWAP that ends 5 days before close w/o knowing exact day it will close (25 biz days in advance). The collar makes it even more complex cause if it trips it then you screwed w/ your hedge. And the illiquidity is an added bonus.
|Subject||Re: Re: Re: Re: arb spread|
|Entry||04/17/2017 06:07 PM|
wafd seems to trade $10mm or so a day. usually banks can give pretty good guidance on when a deal will close. i was thinking you just start hedging about 10 days prior to close and you will kind of get pretty close to okay. but yah, i guess it's a little bit complicated.
|Subject||jerry can't even sell his bank right|
|Entry||09/28/2017 02:54 PM|
deal pushed off. spoke with him today and he was like.. i can't even sell my bank right.
on the positive they are performing pretty well (relatively compared to before) and they got a bump in price. Assuming a Oct 31st 2018 close you are going to get around 28 bucks. there is a small chance someone else wants to bid, but it's small chance it's a big price improvement. i do think it helps support the downside though. pretty attractive IRR if you think it can close in 13 months. it's okay if you think it takes 18 months.