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The Zacks Analyst Blog Highlights The Bank of New York Mellon, Northeast Community Bancorp and SB Financial Group
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For Immediate Release
Chicago, IL – March 16, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Bank of New York Mellon (BK - Free Report) , Northeast Community Bancorp (NECB - Free Report) and SB Financial Group (SBFG - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Ignore SVB Fiasco, These 3 Banks Are on Strong Footing
The stability of the U.S. banking system has been questioned after the collapse of Silicon Valley Bank last week. The fate of the sixteenth largest bank was doomed following run-on deposits that squashed the lender's quest to raise fresh capital.
Now, to prevent contagion in other regional banks, regulators stepped in. So, is it the right time to invest in bank stocks that are now exposed to bouts of volatility? Let us see in detail -
What Led to Silicon Valley Bank's Failure?
Ever since its inception, the Silicon Valley Bank became the lender for tech start-ups, whose businesses were perceived to be riskier by major banks. Over the years, the bank did business with eminent tech companies like Pinterest, Shopify, and Fitbit, to name a few. And particularly during the coronavirus pandemic, which led to the tech sector's boom saw a mammoth increase in deposits at the bank.
The Silicon Valley Bank invested the cash received from such deposits into long-term government securities, perceived to be a safe investment. Regrettably, the value of such securities in recent times took a beating after the Federal Reserve began to hike interest rates aggressively to tame stubbornly high inflation. At the same time, tech companies were finding it difficult to raise money, which compelled them to withdraw money from their deposits in the Silicon Valley Bank accounts.
However, like all banks, the Silicon Valley Bank needs to keep a minimum cash balance. So, to maintain such reserves, the bank had to sell some of its bonds. But the value of such bonds in the market was worth a lot less since the new bonds had higher interest rates. Thus, while selling its bonds, the bank had to bear huge losses, thereby spreading panic among its customers, that were mostly companies and not individuals.
Not only did the customers rush to get money out of the bank, but also venture capitalists started withdrawing their funds. The SVB Financial Group (SIVB), whose primary subsidiary is the Silicon Valley Bank, has witnessed its shares plummet 53.9% this year against the Zacks Banks – West industry's decline of 42.3%.
Government Steps In to Prevent Broader Financial Contagion
Unlike Lehman Brothers, the Silicon Valley Bank is not linked up with the rest of the financial system via a network of credit derivatives. However, the possibility of more depositors pulling money out of their banks because it may be facing the same kind of stress as the Silicon Valley Bank gave the Biden administration nightmares.
After all, the Silicon Valley Bank issues did spill over to Signature Bank (SBNY), whose own depositors asked for big withdrawals. Shares of Signature Bank have plunged 39.2% year to date.
The government stated that all Silicon Valley Bank customers, insured or not insured, will have access to their deposits. The FDIC's Deposit Insurance Fund will be used to cover all depositors' accounts and not the standard $250,000 insured individual accounts. This assured all depositors at the Silicon Valley Bank and shored up confidence in the U.S. banking system.
Furthermore, regulators took control of Signature Bank, and the Fed as well as the Treasury said that they would let emergency-lending authorities provide more funds to meet the demand for bank withdrawals and, in that way, protect against a collapse like that of Silicon Valley Bank.
The Fed also assured that it would provide more funds to banks in times of emergencies through the new "Bank Term Funding Program." Per the program, banks that pledge mortgage-backed securities will be provided loans for up to one year.
Is It Prudent to Invest in Bank Shares Now?
Given that regulators have stepped up their efforts to protect customers' deposits, while banks remain well-positioned to get access to emergency funding, there are no contagion risks. President Biden, in the meantime, has pledged to make the regulatory system stronger to quell future crises in the banking system.
This calls for investing in banks that are fundamentally strong and well-capitalized. Overall, investors' sentiment for the time being could remain weak on the broader banking system due to the unprecedented event. However, in the long run, banks do stand to gain. A sharp pullback in shares of banks also provides an opportunity to buy undervalued companies.
3 Solid Choices
We have, thus, selected three bank stocks The Bank of New York Mellon, Northeast Community Bancorp and SB Financial Group. These stocks have a price-to-book value (P/BV) ratio of less than 1, indicating that the stock is underpriced.
They have a debt-to-equity (D/E) ratio of less than 1, indicating that the company is solvent, or in other words, has adequate cash inflows to cover debt obligations. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Bank of New York Mellon is a financial services company that has been in business since 1784. Its expansionary drive into foreign markets, coupled with a domestic hawkish interest rate environment, will certainly boost the company. BK has a P/BV ratio of 0.99. It has a D/E ratio of 0.86 and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up 4.3% over the past 60 days. The company's expected earnings growth rate for the current year is 5.2%.
Northeast Community Bancorp provides financial services for individuals and businesses. It is the holding company for Northeast Community Bank. NECB has a P/BV ratio of 0.90. It has a D/E ratio of 0.08 and a Zacks Rank #1.
The Zacks Consensus Estimate for its current-year earnings has moved up 34.6% over the past 60 days. The company's expected earnings growth rate for the current year is 52.5%.
SB Financial Group is a financial service holding company with two wholly-owned operating subsidiaries: State Bank and RDSI Banking Systems. SBFG has a P/BV ratio of 0.85. It has a D/E ratio of 0.67 and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up 0.6% over the past 60 days. The company's expected earnings growth rate for the current year is 8.6%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights The Bank of New York Mellon, Northeast Community Bancorp and SB Financial Group
For Immediate Release
Chicago, IL – March 16, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Bank of New York Mellon (BK - Free Report) , Northeast Community Bancorp (NECB - Free Report) and SB Financial Group (SBFG - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Ignore SVB Fiasco, These 3 Banks Are on Strong Footing
The stability of the U.S. banking system has been questioned after the collapse of Silicon Valley Bank last week. The fate of the sixteenth largest bank was doomed following run-on deposits that squashed the lender's quest to raise fresh capital.
Now, to prevent contagion in other regional banks, regulators stepped in. So, is it the right time to invest in bank stocks that are now exposed to bouts of volatility? Let us see in detail -
What Led to Silicon Valley Bank's Failure?
Ever since its inception, the Silicon Valley Bank became the lender for tech start-ups, whose businesses were perceived to be riskier by major banks. Over the years, the bank did business with eminent tech companies like Pinterest, Shopify, and Fitbit, to name a few. And particularly during the coronavirus pandemic, which led to the tech sector's boom saw a mammoth increase in deposits at the bank.
The Silicon Valley Bank invested the cash received from such deposits into long-term government securities, perceived to be a safe investment. Regrettably, the value of such securities in recent times took a beating after the Federal Reserve began to hike interest rates aggressively to tame stubbornly high inflation. At the same time, tech companies were finding it difficult to raise money, which compelled them to withdraw money from their deposits in the Silicon Valley Bank accounts.
However, like all banks, the Silicon Valley Bank needs to keep a minimum cash balance. So, to maintain such reserves, the bank had to sell some of its bonds. But the value of such bonds in the market was worth a lot less since the new bonds had higher interest rates. Thus, while selling its bonds, the bank had to bear huge losses, thereby spreading panic among its customers, that were mostly companies and not individuals.
Not only did the customers rush to get money out of the bank, but also venture capitalists started withdrawing their funds. The SVB Financial Group (SIVB), whose primary subsidiary is the Silicon Valley Bank, has witnessed its shares plummet 53.9% this year against the Zacks Banks – West industry's decline of 42.3%.
Government Steps In to Prevent Broader Financial Contagion
Unlike Lehman Brothers, the Silicon Valley Bank is not linked up with the rest of the financial system via a network of credit derivatives. However, the possibility of more depositors pulling money out of their banks because it may be facing the same kind of stress as the Silicon Valley Bank gave the Biden administration nightmares.
After all, the Silicon Valley Bank issues did spill over to Signature Bank (SBNY), whose own depositors asked for big withdrawals. Shares of Signature Bank have plunged 39.2% year to date.
The government stated that all Silicon Valley Bank customers, insured or not insured, will have access to their deposits. The FDIC's Deposit Insurance Fund will be used to cover all depositors' accounts and not the standard $250,000 insured individual accounts. This assured all depositors at the Silicon Valley Bank and shored up confidence in the U.S. banking system.
Furthermore, regulators took control of Signature Bank, and the Fed as well as the Treasury said that they would let emergency-lending authorities provide more funds to meet the demand for bank withdrawals and, in that way, protect against a collapse like that of Silicon Valley Bank.
The Fed also assured that it would provide more funds to banks in times of emergencies through the new "Bank Term Funding Program." Per the program, banks that pledge mortgage-backed securities will be provided loans for up to one year.
Is It Prudent to Invest in Bank Shares Now?
Given that regulators have stepped up their efforts to protect customers' deposits, while banks remain well-positioned to get access to emergency funding, there are no contagion risks. President Biden, in the meantime, has pledged to make the regulatory system stronger to quell future crises in the banking system.
This calls for investing in banks that are fundamentally strong and well-capitalized. Overall, investors' sentiment for the time being could remain weak on the broader banking system due to the unprecedented event. However, in the long run, banks do stand to gain. A sharp pullback in shares of banks also provides an opportunity to buy undervalued companies.
3 Solid Choices
We have, thus, selected three bank stocks The Bank of New York Mellon, Northeast Community Bancorp and SB Financial Group. These stocks have a price-to-book value (P/BV) ratio of less than 1, indicating that the stock is underpriced.
They have a debt-to-equity (D/E) ratio of less than 1, indicating that the company is solvent, or in other words, has adequate cash inflows to cover debt obligations. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Bank of New York Mellon is a financial services company that has been in business since 1784. Its expansionary drive into foreign markets, coupled with a domestic hawkish interest rate environment, will certainly boost the company. BK has a P/BV ratio of 0.99. It has a D/E ratio of 0.86 and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up 4.3% over the past 60 days. The company's expected earnings growth rate for the current year is 5.2%.
Northeast Community Bancorp provides financial services for individuals and businesses. It is the holding company for Northeast Community Bank. NECB has a P/BV ratio of 0.90. It has a D/E ratio of 0.08 and a Zacks Rank #1.
The Zacks Consensus Estimate for its current-year earnings has moved up 34.6% over the past 60 days. The company's expected earnings growth rate for the current year is 52.5%.
SB Financial Group is a financial service holding company with two wholly-owned operating subsidiaries: State Bank and RDSI Banking Systems. SBFG has a P/BV ratio of 0.85. It has a D/E ratio of 0.67 and a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has moved up 0.6% over the past 60 days. The company's expected earnings growth rate for the current year is 8.6%.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.