The recent banking woes have put a damper on investors’ confidence. However, financial regulators and banks have assured that the banking system remains strong. Last month, President Joe Biden stated, “Americans can rest assured that our banking system is safe.”
Amid this backdrop, investors could consider adding fundamentally strong bank stocks, The Community Financial Corporation (TCFC) and Hanover Bancorp, Inc. (HNVR), to their portfolios.
Despite the banking crisis, the Commerce Department’s GDP data showed an increase of 5.1% annually in the first quarter. Moreover, the Federal Reserve indicated it could pause its interest rate increases, following its tenth consecutive rate hike of 25 basis points earlier this week.
Adding to the optimistic economic data, many executives from top financial institutions offer multiple assurances that the worst of the banking crisis is over. JPMorgan CEO, Jamie Dimon, stated, “You've already seen things calm down quite a bit.” Citigroup CEO, Jane Fraser, said, “Our banking system as a whole is very strong.”
In the wake of the bank failures, banks are likely to face tighter lending standards which might put pressure on their profit margins in the near term. However, the featured banks are currently trading at a discount to their peers. Hence, they could turn out to be attractive investments at current prices.
Therefore, I believe it could be wise to add the featured stocks to one’s portfolio.
The Community Financial Corporation (TCFC)
TCFC operates as the bank holding company for Community Bank of the Chesapeake that provides commercial and retail banking services to individuals and businesses. The company offers demand, savings, money market, and time deposit accounts, as well as certificates of deposit, mortgages, and various types of loans.
On December 14, 2022, Shore Bancshares, Inc. (SHBI) and TCFC announced they have entered into a definitive agreement under which TCFC will merge with and into SHBI in an all-stock transaction.
TCFC’s President and Chief Executive Officer, James M. Burke, commented, “Our combined size and resources will significantly enhance our scale and ability to help customers through higher loan limits, greater investment in technology, and increased career opportunities for employees.”
“This will allow the combined bank to continue to deepen its presence in our core markets and will also allow us to expand more effectively in the markets that we wish to serve," he added.
In terms of the trailing-12-month net income margin, TCFC’s 36.83% is 42.8% higher than the 25.80% industry average. Its 1.21% trailing-12-month Return on Total Assets is 7% higher than the 1.13% industry average. Likewise, its 14.98% trailing-12-month Return on Common Equity is 35.2% higher than the industry average of 11.08%.
In terms of the forward non-GAAP P/E, TCFC’s 5.84x is 27.8% lower than the 8.09x industry average. Its 1.83x trailing-12-month Price/Sales is 11.7% lower than the 2.07x industry average.
TCFC’s net income for the first quarter ended March 31, 2023, increased 16.5% year-over-year to $7.33 million. The company’s net interest income increased 15.8% year-over-year to $19.07 billion. Also, its EPS came in at $1.30, representing an increase of 18.2% year-over-year.
TCFC’s EPS for fiscal 2024 is expected to increase by 2.3% year-over-year to $4.50. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has fallen 21.5% to close the last trading session at $25.70.
TCFC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Mid-Atlantic Regional Banks industry, it is ranked #4 out of 39 stocks. It has an A grade for Stability and a B for Value, Momentum, and Sentiment. We have also given TCFC grades for Growth and Quality. Get all TCFC ratings here.
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. The company offers checking, savings, money market, individual retirement accounts, as well as certificates of deposit and time deposits, cards, residential and commercial real estate mortgages, and a wide range of loans.
In terms of the trailing-12-month net income margin, HNVR's 31.82% is 23.3% higher than the 25.80% industry average. Its 11.93% trailing-12-month Return on Common Equity is 7.6% higher than the 11.08% industry average. Likewise, its 2.71% trailing-12-month CAPEX/Sales is 43.2% higher than the industry average of 1.89%.
In terms of the trailing-12-month non-GAAP P/E, HNVR’s 6.35x is 17.3% lower than the 7.68x industry average. Its 1.74x forward Price/Sales is 6.2% lower than the 1.85x industry average. Likewise, its 0.71x forward Price/Book is 18.2% lower than the 0.87x industry average.
HNVR’s assets for the second quarter ended March 31, 2023, increased 40.3% year-over-year to $2.07 billion. Its interest income increased 57.2% year-over-year to $25.06 million. Additionally, its net income and EPS came in at $3.21 million and $0.43, respectively.
HNVR’s revenue for the quarter ending June 30, 2023, is expected to increase 0.9% year-over-year to $16.80 million. Over the past month, the stock has fallen 1.1% to close the last trading session at $17.92.
HNVR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a Buy. It is ranked #8 out of 64 stocks in the Northeast Regional Banks industry. In addition, it has a B grade for Value, Momentum, and Sentiment.
Click here to access all the ratings of HNVR for Growth, Stability, and Quality.
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TCFC shares were trading at $26.64 per share on Friday afternoon, up $0.94 (+3.66%). Year-to-date, TCFC has declined -32.57%, versus a 7.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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