I’ve mentioned several times that I’m no expert on bank stocks, and generally avoid them (specifically in my post on BAC warrants, though sure wish I had invested bigger in that one!). However, in my recent quest through the pink sheets (mentioned in my posts on ABLT and PGNT), I stumbled upon a bank stock that I thought was interesting enough to mention to readers who like the space.
The bank is Hibernia Bancorp (HIBE). They’re a very small cap bank located in New Orleans.
Again, I know very little about banks, but their balance sheet looks extremely conservative at first glance. Basically the only liability on their balance sheet comes from deposits, they have no debt, and equity makes up ~25% of their assets. That seems awfully conservative to me.
And the valuation is excellent as well. The company currently trades for ~ 2/3 of tangible equity (they just reported full year results, see the press release here). Given that regional banks are generally pretty attractive acquisition candidates, especially ones with strong deposit bases like HIBE, and are generally acquired at 1.25-2.0x tangible book, there could be huge upside for HIBE in the event of an acquisition.
Of course, there are some concerns. The stock is extremely illiquid, with shares only trading a few times per month. Earnings the past few years have been quite weak, and the stock price has also dipped recently on the heels of their decision to deregister from the SEC. This should reduce the company’s legal and compliance costs, and HIBE has already announced they will continue to provide annual and quarterly reports to shareholders; however, it will also reduce liquidity in the stock even further.
Again, this is a bank stock. It’s not exactly my area of expertise. But readers who do count banks in their circle are encouraged to take a look, as there’s a solid chance there’s some value here.
Disclosure- Long BAC warrants
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- 10 keys to beating the market as a small / micro-cap investor, part 2
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Wow:
This is probably the smallest bank that I’ve seen that is publicly traded (based on total assets).
You are right, they are very well capitalized.
My concern is that they are too small, in that they do not have enough deposits to work with. It appears that they have total assets of $88MM.
A well run bank will make a bit over 1% on it deposits. That would work out to about $800k for this bank. The market cap is $14MM. That would be maybe a 16 P/E.
HOWEVER, you run into the problem that the overhead & company expenses are too much for such a small deposit base.
This could be VERY interesting if they can grow by taking over a failed bank…
There are a TON of small cap banks that are trading at huge discounts to TANGIBLE book, are making money, and some even pay a dividend…
Take a look at RBNF, BBBI, and CBIN.
Thanks for posting,
Banks are within my circle of competence so i will take a look.
One of the first things to understand about a bank’s balance sheet is that its liabilities (Deposits) are its assets and its assets (Loans) are its liabilities.
The quality of the assets (deposits) are also very important, as a bank with a large percentage of non-interest bearing deposits will likely get taken out at a premium to one whose deposits are made up mainly of jumbo and regular time deposits.
Should you ever want to learn more about the space, please don’t hesitate to contact me.
Hey Theodor,
Thanks for the offer- I may take you up on it in the near future.
Very much enjoyed your blog and the partnership’s annual letters. I’ve been following retail holdings quite awhile, desperately hoping for a pull back to establish a position in it (to no avail, so far). Hopefully I’ll get one at some point!
Thanks, i sincerely appreciate the kind words.
ReHo has been trading in a very narrow range for the past six months, here’s to hoping for a pullback so that we can both pick up more shares:)
Thanks for the idea.
There are literally thousands of tiny banks that trade over the counter or on the pinks. This bank is absolutely drowning in liquidity compared to most of them. Yahoo finance shows an average of about 450 shares daily volume. Yes, most of that volume is traded in just a few days a month. However, I’ve owned, and own currently, small banks that trade that much money in stock over an entire quarter, it comes with the territory. My favorite current tiny community bank has a $25 stock price and a volume that averages 3 shares per day!
Small banks are the best because, as far as disclosure goes, it almost doesn’t matter if they report to the SEC or not. They have to publish call reports every quarter and are heavily regulated by the FDIC. All information is public on the FDIC site for those who want to find it. So as far as going dark, it’s really irrelevant, except for the effects it will have on the liquidity of the stock.
Looks like Hibernia was a demutualization from back in 2009.
I will second Hester’s comment on illiquidity. I’ve had a bid out for a week on a OTC bank before finally getting a fill. Most days 100 shares trade. This is truly the realm of individuals or small fund managers.
I also recommend the FDIC website for finding data on unlisted banks.