This Micro Bank Is Worth a Look

Home Federal Bank of Louisiana has been in business for about a hundred years is very undervalued

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Nov 29, 2021
Summary
  • Home Federal Bank of Louisiana is local bank based in Shreveport, Louisiana.
  • This micro bank has a century of experience and looks undervalued.
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I know a lot of people who are constantly browsing through their social media feeds. Personally, I never got into the social media scene. Instead, I got into investing. I have a habit of browsing through the vast GuruFocus database of companies for entertainment. GuruFocus is like a box of mixed chocolates - you never know what you are gonna find.

Recently, I stumbled across a small local bank that operates in the Louisiana Bayou - Home Federal Bancorp Inc. of Louisiana (

HFBL, Financial). Home Federal Bancorp is a tiny bank with a market capitalization of only about $66 million. It has nine branches in the Shreveport and Bossier City areas of Louisiana. I don't think Wall Street is going to bother with such a small banking operation. However, the bank has been in business since 1924. That is almost 100 years. How many companies can say that?

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What caught my attention in regards to this company was a high predictability scores for earnings (4 out of 5 stars) and undervaluation based on the earnings-based discounted cash flow (DCF) calculator. The GF Value chart is also signaling considerable undervaluation.

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Home Federal Bancorp also looks considerably undervalued based on its 10-year median price-earnings and price-book ratios.

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Book value has compounded at a 10% clip over the last 10 years. Home Federal Bancorp pays a small but growing dividend.

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The bank is well capitalized with a Tier One Capital ratio of over 16%. Return on assets is ~1% and return on equity is ~10%. These are decent numbers.

Conclusion

America is dotted with small but profitable banks serving the local community and greasing the wheels of local enterprise. They are usually below Wall Street's radar, which means a lot less competition for the retail value investors who are in search of undervalued names. I think Home Federal Bancorp looks like a good solid niche opportunity that is very undervalued. With interest rates rising, small bank earnings usually do well, since the only thing that can really drive these small-time stocks higher is actual business improvement (vs. Wall Street darlings that are driven higher by broader bull markets and investor optimism).

Disclosures

I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure
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