While there is a relief that the banking turmoil in March did not escalate into a full-blown credit crunch and the U.S. managed to avoid a debt ceiling crisis, there is growing concern about an upcoming economic downturn.
Despite the challenges, I think quality bank stock Hanover Bancorp, Inc. (HNVR) could be worth investing in. However, Glacier Bancorp, Inc. (GBCI) and Silvergate Capital Corporation (SICP) might be best cashed out.
In the first quarter of this year, US banks experienced a significant decline in deposits, amounting to a staggering $472 billion, as the Federal Deposit Insurance Corporation (FDIC) revealed. The deposit decline was the largest since the FDIC began collecting quarterly industry data in 1984, marking the fourth consecutive quarter of industry outflows.
In addition, despite an improved outlook for global growth in 2023, the World Bank has adjusted its forecast for 2024 downward to 2.4% from the previous estimate of 2.7%. This revision is due to the enduring impact of central bank tightening and tighter credit conditions, leading to reduced investment in businesses and residential sectors.
World Bank Chief Economist Indermit Gill has expressed a somber view on the updated forecasts, highlighting that 2023 will be one of the slowest growth years for advanced economies in the past five decades.
Furthermore, the U.S. banking system has been under pressure due to the Fed’s rapid interest rate increase over the past year. Moreover, the eurozone has entered a recession, and there have been disappointing economic indicators from China, signaling warning signs for global markets.
Benjamin Jones, the director of macro research at Invesco, “We are heading for a downturn, and it varies from region to region.” He also added, “There’s a lot of debate, and my degree of confidence is quite low.”
Stock to Buy:
Hanover Bancorp, Inc. (HNVR)
HNVR operates as the bank holding company for Hanover Community Bank, which provides banking products and services for small and medium-sized businesses, municipalities, and individuals in the New York metro area.
HNVR’s trailing-12-month ROCE of 12.06% is 8.9% higher than the industry average of 11.08%. Its trailing-12-month CAPEX/Sales of 4.12% is 115% higher than the 1.92% industry average.
On May 22, 2023, HNVR expanded the company’s geographic footprint with the opening of its ninth location at 410 Motor Parkway, Hauppauge, New York.
Michael P. Puorro, Chairman & CEO of the company, said, “This is an important milestone for us. We are thrilled to be a part of Suffolk County and look forward to serving the banking needs of so many vibrant businesses and residents through our commercial, municipal, and retail banking products and services.”
HNVR paid a $0.10 per share cash dividend on both common and Series A preferred shares on May 17, 2023. Its annual dividend of $0.50 yields 2.24% on the current price level. Its four-year average dividend yield is 1.32%.
HNVR’s interest income increased 57.2% year-over-year to $25.06 million in the fiscal second quarter that ended March 31, 2023. Its adjusted net income and EPS came in at $3.56 million and $0.48, respectively. The company reported a net interest income of $13.92 million.
Street expects HNVR’s revenue and EPS to amount to $16.30 million and $0.45 in the fiscal third quarter ending June 2023.
The stock has tumbled 1.3% over the past month to close the last trading session at $17.41.
HNVR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has a B grade for Value, Momentum, and Sentiment. The stock is ranked #8 in the 64-stock Northeast Regional Banks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see HNVR’s ratings for Growth, Momentum, and Quality here.
Stocks to Sell:
Glacier Bancorp, Inc. (GBCI)
GBCI operates as the bank holding company for Glacier Bank that provides commercial banking services to individuals, small to medium-sized businesses, community organizations, and public entities in the United States.
GBCI’s trailing-12-month ROCE and ROTC of 1.07% and 10.12% are 8.7% and 4.9% lower than the industry average of 11.08% and 1.12%, respectively.
In the fiscal first quarter that ended March 31, 2023, GBCI’s total interest expenses rose 821.1% year-over-year to $45.70 million, while its non-interest expenses rose 3.6% from the previous-year quarter to $134.98 million. Its net income declined 9.7% year-over-year to $61.21 million.
Analysts expect GBCI’s loss per share to widen 27.3% year-over-year to $0.51 during the fiscal quarter ending June 2023. Its revenue is expected to decline 2.6% year-over-year to $215.88 million. Also, GBCI missed its consensus revenue estimates in each of the trailing four quarters, which is disappointing.
Over the past six months, the stock has plunged 27.8% to close the last trading session at $36.16.
GBCI’s weak fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Value, Growth, Quality, and Sentiment. It is ranked #43 out of 44 stocks in the F-rated Pacific Regional Banks industry.
Access additional GBCI ratings for Stability and Momentum here.
Silvergate Capital Corporation (SICP)
SICP operates as a bank holding company for Silvergate Bank that provides banking products and services to business and individual clients in the United States.
SICP’s trailing-12-month ROCE and ROTA of negative 85.77% and 8.26% compare to the industry average of 11.08% and 1.12%.
On March 8, SICP announced its intent to wind down operations and voluntarily liquidate Silvergate Bank in an orderly manner and accordance with applicable regulatory processes. In light of recent industry and regulatory developments, SICP believes that an orderly wind-down of bank operations and a voluntary liquidation of the bank is the best path forward.
During the fourth quarter that ended December 31, 2022, SICP’s total expenses rose significantly year-over-year to $60.43 million. The company reported a net loss and loss per share of $1.05 billion and $33.16, compared to a net income and EPS of $21.39 million and $0.66 in the prior-year quarter.
Shares of SICP have plunged 98.2% over the past year to close the last trading session at $1.15.
SICP’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Value, Quality, Growth, and Sentiment and a D for Stability. The stock is ranked last within the Pacific Regional Banks industry.
Click here to access additional SICP ratings (Momentum).
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HNVR shares were trading at $17.48 per share on Friday morning, up $0.07 (+0.40%). Year-to-date, HNVR has declined -13.35%, versus a 15.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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