Sunday, July 14, 2013

Northway Financial Inc, North Conway, NH (NWYF)

A Case of a Rock Solid Opportunity in the Granite State


You'd have to dig pretty hard to unearth a better bank stock to buy now than Northway Financial. NWYF's current price of $15.70 is a bargain, and the bank's takeover prospects present strong opportunity for capital gains. I'm pretty happy to own more of this high-yielding block of granite than I do of diamonds or gold.

Disclosure: As of this posting, I own shares of NWYF and may subsequently either dispose of them or purchase more.

Prospective Buyers
Surveying the regional banking landscape, I can see three institutions for which an acquisition of Northway Financial would make great sense:
New Hampshire Thrift Bancshares, Newport, NH (NHTB)
People's United Financial, Bridgeport, CT (PBCT)
Toronto Dominion Bank, Toronto, Canada (TD)
Financial Snapshot
(as of 03/31/2013)

Total assets:
$850M
Tangible book value per share:
$17.30
NPAs to assets:
2.2%
Price to book:
75%
Market cap:
$43.4M
Dividend yield:
3.9%
Trailing 12-month return on assets:
0.83%
Trailing 12-month return on equity:
8.83%
TARP:
$0M*
*Redeemed $10M in full, July 2011
Luminaries
William J. Woodward, Chairman, President and CEO
Fletcher Adams, Vice Chairman of the Board
Russell Cronin Jr. Senior VP and CFO
Gold Stars
GREAT VALUE!
  • Northway Financial is producing a solid 8.8% Return on Equity. That's 32% better than New Hampshire Thrift's 6.6%, and 87% better than People's rocky 4.7% 
  • NWYF stock is currently trading at a significant discount to its stated book value of $21.03 per share, where regional competitors are trading at a premium
  • Currently trading for just 6.7x earnings, NWYF offers a far better PE Multiple than its peers, considering NHTB is trading for 13x earnings and PBCT is trading for 21.4x earnings 
ROOM TO GROW!
  • Having already grown tangible equity by over 55% in the past four years mainly through record earnings, Northway Financial is inarguably on a growth path
  • Northway could easily double the already fat 3.9% dividend it pays out, which represents only 15% of the bank's earnings (half the industry average of 30%)
TAKEOVER POTENTIAL?
  • Northway Financial enjoys significant marketshare in three of the six counties in which it operates, including market dominance in Coos County, NH, where it owns 33% of the market. So any bank looking to grow in these counties could obtain a strong foothold in Northway's bedrock 
  • Northway's Chairman and Vice Chairman are both over 65 years old —an age at which it's not unusual to be making plans for retirement. So it's reasonable to anticipate that they'd at least consider offers for selling this durable bank
  • As NWYF's single largest shareholder, Chairman William Woodward would be personally enriched by a sale of the bank, and in my book, he has certainly earned the right to exit on a high note and move on to other endeavors
Sources

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