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Hingham Institution For Savings: Growth Rates Starting To Pressure Shares

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Profit Fan


  • HIFS turned in another great report for the year with ROAs of 1.22%.
  • However, margins are down and starting to pressure the bank's more expensive shares.
  • Loans continue to outpace deposits, requiring higher-yielding short-term funds that will reprice faster than assets as rates start to increase.
  • I'm cautious because the bank is at an inflection point and on the other side is below average earnings growth.
  • 2017 earnings increased by 8.45%, which compares to the 4-year average CAGR of 17.1%.

Hingham Institution for Savings (NASDAQ:HIFS) reported net income of $11.81 per diluted share for 2017, an increase of 8.45% over 2016 results. The bank's return on average assets (ROA) during 2017 was 1.22%, a 1 basis point improvement over the 1.21% posted in the comparable period of 2016.

In my last article on the name, I modeled out a simple scenario that brought assets to $3.5 billion in ~5 years. To get there with ~3.5 years remaining, assets need to add ~13% a year, which is slightly below last year and the 4-year trailing CAGR. I said simple scenario, so my projections only required the asset growth rate, a 1.2% return on assets (bank currently producing 1.22%) and a 12.5 earnings multiple (which compares to the 5-year average of ~13.93) to net shareholders a 16% annualized return.

I was trying to be conservative, by assuming a below average P/E multiple and no rerating, but while fundamentals are on track the market clearly had other plans. Today's shares at $204 are up 36.4% since July of 2016, but down significantly from the 52-week high of $241.59. I got out after the announcement of tax changes sent shares up to ~$230 in December. This is a high-quality company that could be considered a forever hold, but the market was ready for my sale and I was starting to worry about margin pressure.

As you can see in the table above, weak deposit growth has required more expensive financing (Federal Home Loan Bank Advances) to keep up with the portfolio. This is not a new development, but in a rising rate environment, it's especially risky considering portfolio duration.

From 10-K

It helps that 67% of the portfolio has adjustable rates (shown above), but in 2018 $1.299 billion in liabilities reprice compared to assets of $777 million. That's a major

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I don't like to lose money.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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