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In my column in this week’s Barron’s, I recommended three small bank stocks. Another one to add to the list is Norwood, Mass.-based Blue Hills Bancorp (ticker: BHBK).

Blue Hills, with $2.3 billion in assets, operates 11 branches in the Boston area, including in Brookline, Dedham, Westwood, and on Nantucket. In July 2014, Blue Hills converted from a mutual structure to full stock ownership in a $280 million offering.

At a recent $15.55, its shares have climbed 50% since the bank’s 2014 offering. Yet they still look cheap. They trade for just 1.1 times the bank’s $14.05 a share tangible book value.

In a client report published last week, Compass Point analyst Laurie Havener Hunsicker pointed out that same-sized New England peers trade for 1.6 times tangible book. Hunsicker puts Blue Hills’ fair value at $19 a share, or more than 20% above its recent price.

Blue Hills has plenty of excess capital. Tangible common equity stands at 16.5% of total assets. Management has been using the capital to buy in the bank’s shares, and has reduced its share count by 7% in the last year. The buybacks, which have helped to increase earnings per share, are likely to continue.

Blue Hills has solid credit quality. Nonperforming assets represent less than 0.5% of total assets. Real estate loans make up the bulk of its lending business. Residential mortgages and commercial real estate account for 47% and 38% of its $1.8 billion loan book, respectively. Blue Hills also underwrites commercial and consumer loans.

Blue Hills has used its capital to invest back in its business, and in recent years, has built up its team of lenders. Those investments have paid off with strong loan growth. Last week, Blue Hills reported its September quarter, and compared with a year ago, total loans have grown 20%. The gains have been driven by increased real estate lending, both residential and commercial.

Blue Hills, too, has opened new branches. The bank opened an office in Westwood last year, and just last month added its latest branch in Boston’s Seaport neighborhood.

The growth is expected to drive earnings over the next 12 months. For 2016, Blue Hills could earn $7.4 million, or 30 cents a share, on revenue of $52 million. Next year, earnings could rise to 46 cents a share. A lower share count will also help.

For several years, Blue Hills has been in litigation with its former Treasurer over wrongful-termination. The lawsuit made some serious allegations, including accounting irregularities. Analyst Hunsicker pointed out in her latest report that she believes that Blue Hills is “fully compliant with the regulators,” and that any liability will be limited to “a potential award (if any) to the plaintiff.”

In this week’s Barron’s, I noted that thrifts are typically restricted from a sale for three years following their stock offerings. Blue Hills’ anniversary is coming up next summer. As banks approach their three-year window, their valuations tend to rise. In the next year, Blue Hills’ shares could gain nicely.

REF: http://www.barrons.com/articles/blue-hills-bancorp-can-rise-by-at-least-20-1478166986?mod=BOL_hp_highlight_4