HIBS: 3 Stocks to Own as Regional Banks Rebound

In just the first few days of trading in 2021, regional bank stocks are soaring. The SPDR S&P Regional Banking ETF (KRE) is up more than 12%, while the S&P 500 is trading just 1.29% higher.

The banking industry saw more than its fair share of challenges in 2020, ranging from the closure of branches due to the coronavirus pandemic, to the increased competition from non-bank fintechs. The Deloitte Center for Financial Services is estimating that the U.S. banking industry may have to provision for a total of $318 billion in net loan losses from 2020 to 2022, which would represent 3.2% of loans.

Last month, Fitch Ratings revised its Sector Outlook for U.S. banks from Negative to Stable for 2021, although it also pointed out that approximately 60% of U.S. bank ratings were carrying a Negative Outlook. While the ratings agency acknowledged that “bank fundamentals have largely held up better than our baseline and downside scenarios, suggesting widespread downgrades are less likely,” it also warned a continuation of the historically low interest rate environment and declining loan demand, coupled with the uncertainty of credit quality when the federal stimulus is eventually tapered, could pose new problems for the industry.

Nonetheless, investors have not lost their appetite for bank stocks. And while the largest banks inevitably gain the lion’s share of attention, a trio of regional banks that rarely gain the national spotlight – Hingham Institution for Savings (HIFS), Webster Financial Corp. (WBS), and German American Bancorp (GABC) – continue to offer consistently solid performances in our proprietary POWR Ratings and are likely to see continued gains into 2021.

Hingham Institution for Savings (HIFS)

HIFS was founded in 1834 and has 10 branches spread across the Boston, southern Massachusetts and Nantucket markets. In its Q3 earnings, the bank reported $2.719 billion in assets, up from $2.48 billion one year earlier.

HIFS’ book value per share was $130.24 as of Sept. 30 closing date of Q3, representing 17% annualized growth year-to-date and 17% growth year-over-year. In addition to the increase in book value per share, HIFS declared $2.31 in dividends per share since Q3 2019, including a special dividend of $0.60 per share declared during the fourth quarter of 2019 – HIFS’ regular dividend per share has been rising over the last four quarters.

At the close of Q3, the bank had modified less than 1% of its total loan portfolio by number and less than 3% by dollar in response to pandemic. HIFS Chairman Robert H. Gaughen Jr. announced the Q3 earnings by noting that the bank has responded to “unusual opportunities” in the pandemic-era economy while remaining “focused on careful capital allocation, defensive underwriting and disciplined cost control – the building blocks for compounding shareholder capital through all stages of the economic cycle.”

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HIFS is trading at $216.21, slightly below its 52-week high of $230.02 and a comfortable distance from its 52-week low of $125.55. It holds an overall POWR Rating of “A” (Strong Buy), with POWR Components of “A” for Trade Grade, “A” for Buy & Hold Grade, and “A” for Peer Grade.

Webster Financial Corp. (WBS)

WBS is the parent company of Waterbury, Connecticut-headquartered Webster Bank and its HSA Bank division. The company was founded in 1935 and operates 156 branches across Connecticut, New York, Rhode Island and Massachusetts.

In its Q3 earnings report, WBS reported $32.9 billion in assets, up from $29.8 billion one year earlier. WBS’ Q3 loan growth of $2.3 billion was up by 11.8% from a year ago – excluding Paycheck Protection Program (PPP) loans, Q3 total loan growth was $946 million, or 4.8% year-over-year. Q3 deposit growth was $3.6 billion, or 15.6% year-over-year, fueled by a $1.8 billion rise in demand deposits and $688 million in HSA deposits.

“True to our heritage and our values, we are pleased to be able to do our part to help consumers and businesses manage through uncertainties brought on by the COVID-19 pandemic,” said John R. Ciulla, chairman and CEO, in announcing the Q3 results.

However, WBS is not without problems. Last month, it announced plans to close 27 branches across Connecticut, Rhode Island and Massachusetts as part of a cost-cutting strategy designed to reduce operational expenses by up to 10% before the end of 2021.

WBS is trading at $45.96, closer to its 52-week high of $53.60 than its 52-week low of $18.16. It carries an overall POWR Rating of “B” and its components include an “A” Trade Grade, a “C” Buy & Hold Grade, and an “A” Peer Grade. It is ranked #9 out of 81 in the Northeast Regional Banks category.

German American Bancorp (GABC)

Jasper, Indiana-based GABC was founded in 1910 and is the parent company of German American Bank, which serves southern Indiana and Kentucky from 80 branches, and also operates German American Investment Services Inc. and German American Insurance Inc.

In its Q3 earnings report, GABC’s total assets were $4.85 billion, an increase of $496.9 million, or 11%, compared with the previous year. GABC’s Q3 earnings of $14.6 million, or $0.55 per share, was an increase of approximately 12%, on a per share basis, compared to third quarter 2019 net income of $13.1 million, or $0.49 per share. End-of-period loans, as of the conclusion of Q3, were approximately $3.2 billion, a year-over-year increase of $164 million, or approximately 5%, while total deposits approximately $4 billion were up by $548 million, or approximately 16%, relative to one year earlier. The Company also declared a regular quarterly cash dividend of $0.19 per share.

“The current environment of extremely low general market interest rates makes it very difficult to drive growth of net interest income,” said GABC Chairman and CEO Mark A. Schroeder.

“Additionally, it’s prudent to continue to enhance the level of our allowance for credit losses until the future economic impact of the pandemic is more readily determinable. In spite of these headwinds, we were, nevertheless, able to generate very strong 12% year-over-year quarterly earnings improvement by focusing on the growth of multiple sources of non-interest income and solid control of nearly every category of operating expenses.”

GABC is trading at $35.50, slightly below its 52-week high of $36.17 and comfortably higher than its 52-week low of $23.54. It carries a POWR Rating of “A” and its rating components include an “A” Trade Grade, “A” Buy & Hold Grade, “B” Peer Grade and “B” Industry Rank. It is ranked #7 out of 57 stocks in the Midwest Regional Banks category.

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HIBS shares were trading at $1.35 per share on Thursday morning, down $0.09 (-5.94%). Year-to-date, HIBS has declined -19.16%, versus a 1.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Phil Hall

Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...