Harbor Bankshares: The Valuation Doesn’t Make Sense

Ever week I scan through my favorite idea screener on CompleteBankData called the Growing Cheap Bank screener. With this idea generator, I always go straight to the bottom to find the cheapest bank that I can find. Today, the cheapest bank on the screener is Harbor Bankshares Corporation (HRBK).

Harbor Bankshares is an extremely cheap bank that openly begs to question the validity of the valuation. Moreover, I am exceedingly skeptical in regards to an investment the company given the blatant discount as a whole.

Summary

Harbor Bankshares is the Hold Co. of the Harbor Bank of Maryland, which is a seven branch bank located in Baltimore, Maryland. The company has assets of $266,014,000, equity capital of $19,229,000 and total loans of $185,391,000.

harbor

Valuation doesn’t make sense

One of the biggest share price overhangs in regards to Harbor Bankshares is the company’s ‘dark’ status. The company as a whole stopped filing financials sometime in 2006-2007, leaving shareholders completely in the dark.

Although, the company did file a 2016 proxy statement which states that there are 989,624 shares outstanding. At a share price of $2.95/share, this leaves us with a market cap of $2,919,390. With a market cap of $2,919,390 and total equity capital of $19,229,000, we arrive at a BV of 0.15x.

A BV of 0.15x makes Harbor Bankshares one of the cheapest banks that I have ever found. Conversely, the valuation seems too good to be true and leaves me to be a skeptic at best. In addition, if you look at the Hold Co., there is a significant amount of preferred stock.

If we take into consideration the Hold Co. and its preferred stock of 6,800,000, we get a total equity capital position of $12,429,000. With an equity value of $12,429,000 and a market cap of $2,919,390, we arrive at a TBV of 0.23x; a significant valuation gap.

What we have now is a very cheap bank. However this cheap bank is losing money (on a bottom-line basis), and while seeing its net interest income shrink in the past few years. Furthermore, the company has negative ROE and ROA ratios and a sky-high efficiency ratio of 114.45.

Takeaway

Harbor Bankshares appears to be an extremely cheap company, trading at a basement level valuation. On the flipside, the company is dark and the business is losing money on a bottom-line basis. However, it begs to ask; what could go wrong at this point to justify the valuation?

Nick Bodnar

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