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Report
2 Regional Banks That Have Just Caught Upgrades To Keep On Watch
Benzinga
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10/9/2024
David Chiaverini is a managing director covering the disruptive finance and bank sector with over 20 years of investment experience.
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00:00
David, earlier you mentioned Western Alliance. Are there any other of that grouping of regional
00:07
bank stocks that got crushed? I don't even know when that was, a year and a half ago,
00:11
two years ago?
00:12
Last April.
00:13
Was it really only last April? It feels longer ago than that. Are there any other regional
00:17
banks that to you stand out as either the market's undervaluing them right now, or they're
00:25
doing some interesting things to kind of stand out from the rest of the group? Is Western
00:29
Alliance kind of the one that sticks out to you?
00:33
No, there's some others. And one of the themes when we published our preview a couple weeks
00:38
ago and then put out a follow-up note this morning is the overarching theme, now that
00:43
the Fed has pivoted to lower rates, is we're leaning into those that have a liability-sensitive
00:50
balance sheet. And what that means is their liabilities ought to reprice faster in a downrate
00:57
environment than their assets, which should lead to an expanding net interest margin.
01:03
So the banks that I like, given that backdrop that we just upgraded, is Bank of California,
01:09
BANC. They are liability-sensitive. I expect their net interest margin could exceed their
01:15
guidance range at the end of this year. And then looking out to next year as rates are
01:20
expected to come down even more, I think BANC is well-positioned to take advantage. And
01:26
then they've also gone through a merger that they've been working through over the past
01:31
year. And I think that they're going to get their expenses down into their range of $195
01:36
to $200 million. And it should lead to nice earnings growth relative to other banks looking
01:42
out to next year. So I like Bank of California. The other one I just recently upgraded that
01:47
is liability-sensitive is Columbia Banking System, COLB. Similarly, I expect their net
01:53
interest margin to benefit. Looking out to next year, they have a range of $345 to $360
02:00
on the net interest margin. I think they're going to come in at the high end of that range.
02:04
And right here, when they announce earnings this month, third quarters tend to be seasonally
02:11
strong for them on the deposit side. So I think they could surprise to the upside there
02:17
as well. And they're trading at a discount to the group. So I think they're well-positioned
02:22
for the outlook as well. And then we recently downgraded a couple asset-sensitive banks.
02:28
So First Citizens, FCNCA, they are the most asset-sensitive in our coverage, and we expect
02:35
them to face headwinds in a lower-rate environment. So we downgraded that one. We also downgraded
02:42
First Horizon, FHN. They also are asset-sensitive, so we think they're going to face the headwinds.
02:48
So we decided to step aside on that one as well.
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