Regional bank stocks zoomed higher in late 2023, in anticipation of interest rate cuts in 2024. So far this year, however, there have been more indications that the Federal Reserve’s “higher for longer” stance on interest rates will persist.
Initially having a positive impact on net interest margin, high rates have turned from friend to foe, and regional banks are experiencing the fallout from challenges like high exposure to commercial real estate and loans on rent-regulated multifamily properties.
Each of the following seven regional bank stocks is feeling the heat of these macro developments, a concern for investors considering a contrarian position in this sector.
Bank of Hawaii (BOH)
Bank of Hawaii (NYSE:BOH) is a prime example of a regional bank impacted by current interest rate and loan demand trends on the net interest margin. BOH’s net interest margins have fallen considerably, with the quarter ending Dec. 31, 2023, showing a 17.7% decline from the prior year’s quarter. Short interest in BOH stock remains high at 15.3% of float sold short, driven by concerns about potential further loan losses stemming from the bank’s pre-rate-hike loan portfolio.
Columbia Banking System (COLB)
The impact of “higher for longer” took a sudden plunge on Columbia Banking System (NASDAQ:COLB), following a severe drop in share price late last month due to quarterly results falling below forecasts. Colombia’s guidance updates suggest that issues like declining net interest margins will continue through the year, leading to a much lower valuation (7.9 times forward earnings).
KeyCorp (KEY)
Admittedly, KeyCorp (NYSE:KEY) has held up relatively well compared to the regional banking plays discussed above and below. The Cleveland, Ohio-based regional banking giant stabilized its net interest margins but provided soft guidance regarding future earnings growth. KEY is trading at nearly 12 times forward earnings, and further disappointment in the coming quarters could lead to a de-rating for shares.
