As we see banks blow up and get bailed out left and right, mired in toxic assets and in constant danger of becoming insolvent, a tiny bank in Hingham, Massachusetts just reported a 40% increase in annual earnings and 19% increase in deposits, yet trades below its book value of $28.20 and less than 9 times earnings. Hingham Institution for Savings (HIFS) may just be the cheapest bank stock in the country, and pays a 4% dividend (when accounting for its annual special dividend) to boot.
So why would a conservatively run and growing bank trade at such attractive valuations? I'd suggest several reasons:
- The stock is very thinly traded and frequently sports a 10% spread in bid/ask, making it unattractive for anyone looking to establish a sizable position or to trade in and out.
- There's no analyst coverage nor does there appear to be much interest by the bank to court the street. There have been no quarterly conference calls and there's been no participation in investor conferences to create retail interest in the stock.
- At a market cap of just $55 million, it generally slips under most investors' radar. While other banks are run by CEOs bent on building empires many of which have self-destructed in recent months, HIFS has had little desire to expand.
- Earnings decreased from $6.2 million in 2005 to $4.6 million in 2006, and dipped slightly again to $4.5 million in 2007, but the ship was definitely righted in 2008. One assumes the shuttering of larger insitutions and fears of solvency have prompted many in Massachusetts to shift their money out of the big banks into the comparative safety of Hingham.
- Non performing loans have increased from .21% in 2007 to .91% in 2008, a trend I'd like to see plateau soon but certainly in a reasonable range given how weak the economy has been.
I look for Hingham to break out of this sideways trade in the mid $20s to edge to the low $30s as evidence continues the earnings slip of 2006 and 2007 has been corrected. If my predictions for deposit growth to continue to be bolstered thanks to its peers' continued troubles, we could see the stock return to its all-time highs in the low $40s it enjoyed in 2005. Insiders seem to agree with the stock's value, consistently buying shares.
Disclosure: Long HIFS.