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