After the mega bull run last year, the stock market has experienced a slowdown this year due to various macroeconomic and geopolitical headwinds. One of the main reasons for the broad-based correction in equities has been the rise in the benchmark interest rates by the Federal Reserve.
The Federal Reserve has hiked the benchmark interest rates four times this year, the most recent being a 75-basis point increase last week. The central bank regulates the benchmark interest rates to increase or decrease the money supply in the economy as demanded by the macro factors.
The Fed had reduced the interest rates during the initial months of the COVID-19 pandemic to boost economic activity. However, with inflation hitting a multi-decade high and the job market remaining tight, the Fed has been increasing interest rates aggressively to bring prices down.
With the concern of rising borrowing costs, investors have dumped stocks of most sectors, causing a broader market sell-off. However, since financial institutions, including banks, usually benefit from rising interest rates, they are in investors’ focus. Rising interest rates help financial institutions expand their interest income.
Given this backdrop, it could be wise to add fundamentally strong stocks Unity Bancorp, Inc. (UNTY), TrustCo Bank Corp NY (TRST), and Bankwell Financial Group, Inc. (BWFG) to one’s watchlist.
Unity Bancorp, Inc. (UNTY)
UNTY is a bank holding company that serves as a holding company for Unity Bank. The company’s primary business is ownership and supervision of the bank. The company, through the bank, conducts a traditional and community-oriented commercial banking business and offers services, including personal and business checking accounts, time deposits, money market accounts, and regular savings accounts.
The company engages in various lending activities and offers commercial, small business administration, consumer, mortgage, home equity, and personal loans.
On July 12, 2022, UNTY was added to the U.S. small-cap Russell 2000 index. Unity Bank CEO and President James A. Hughes said, “We are extremely pleased to have been added as a member of the Russell 2000 Index as it illustrates Unity’s continued financial strength and performance.”
UNTY’s total interest income increased 11.5% year-over-year to $23.07 million for the second quarter ended June 30, 2022. The company’s net interest income after provision for loan losses increased 11.5% year-over-year to $20.56 million. Also, its net income increased 12.2% year-over-year to $9.45 million. In addition, its EPS came in at $0.88, representing an increase of 10% year-over-year.
Analysts expect UNTY’s EPS for fiscal 2023 to increase 5.1% year-over-year to $3.73. Its revenue for the quarter ending December 31, 2022, is expected to increase 11.7% year-over-year to $26.21 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 24% to close the last trading session at $28.02.
UNTY’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of B, translating to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Additionally, the stock has an A grade for Stability and a B for Momentum and Sentiment. It is ranked #9 out of 64 stocks in the Northeast Regional Banks industry. Click here to see the other ratings of UNTY for Growth, Value, and Quality.
TrustCo Bank Corp NY (TRST)
TRST is a federal savings bank that provides personal and business banking services to individuals, partnerships, and corporations. The company accepts deposits; and offers loans and investments. It also operates as a real estate investment trust that acquires, holds, and manages real estate mortgage assets, including residential mortgage loans and mortgage-backed securities.
On March 9, 2022, TRST announced that its Board of Directors had approved a stock repurchase program. TRST is expected to repurchase up to 200,000 shares of its common stock. This is expected to create value for its shareholders.
For the fiscal second quarter ended June 30, 2022, TRST’s net interest income increased 7.3% year-over-year to $43.06 million. The company’s net income increased 23.8% year-over-year to $17.87 million. Also, its EPS came in at $0.933, representing an increase of 24.7% year-over-year.
For fiscal 2022, TRST’s EPS is expected to increase 5% year-over-year to $3.35. Its revenue for the quarter ending December 31, 2022, is expected to increase 10.3% year-over-year to $49.45 million. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 8.9% to close the last trading session at $33.56.
TRST’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Momentum, Stability, and Sentiment.
Within the Northeast Regional Banks industry, it is ranked #15. To see the other ratings of TRST for Growth, Value, and Quality, click here.
Bankwell Financial Group, Inc. (BWFG)
BWFG operates as the bank holding company for Bankwell Bank that provides various banking services for individual and commercial customers. It offers various traditional depository products, including checking, savings, money market, and certificates of deposit.
BWFG’s noninterest income increased 20.3% sequentially to $1.15 million for the second quarter ended June 30, 2022. The company’s operating revenue increased 38.6% year-over-year to $24.97 million. Also, its net interest income increased 43.7% year-over-year to $23.82 million.
Analysts expect BWFG’s EPS for fiscal 2022 to increase 19.3% year-over-year to $4.01. Its revenue for the quarter ending September 30, 2022, is expected to increase 16.5% year-over-year to $21.62 million. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 16.3% to close the last trading session at $32.78.
BWFG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, Stability, and Sentiment. Again, it is ranked #6 in the same industry. Click here to see the ratings of BWFG for Growth and Quality.
UNTY shares were unchanged in premarket trading Monday. Year-to-date, UNTY has gained 7.55%, versus a -12.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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