I wouldn’t blame you for thinking the financial sector is on shaky ground. With significant uncertainties hiding around the corner, it isn’t easy to pinpoint where the market is headed. Possibilities of higher-for-longer interest rates and sticky inflation is the news of the day, all while Wall Street demands a rate cut. Judging from the Federal Reserve’s moves, there is a significant possibility of a soft landing. However, this uncertainty is causing some investors to move their capital from bank stocks into other sectors.
According to Deloitte’s Banking Industry Outlook, the macroeconomic environment is one of the critical drivers of most banks’ ability to generate income, maintain profitability, and manage costs. For the banks to face these challenges, a greater focus on addressing higher deposit costs while anticipating modest loan growth and adapting to changing market dynamics and regulatory pressures are some of the critical things they need to do in the next fiscal year.
While the outlook might be murky, there are still great opportunities in the banking sector if you feel a bit contrarian. Additional due diligence and research are required to identify which bank stock offers the best risk-to-reward ratio and potential growth, and we’re here to help out with those. These three bank stocks are some of the best to own right now.
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The first financial stock in our list is Customers Bancorp (NYSE:CUBI), which operates as a bank holding company. Its operations are done under its subsidiaries, providing full-service banking services from deposits, loans, commercial banking, and lending. The company also has specialty banking operations for niche businesses, offering commercial loans, equipment financing, and warehouse lending. In June 2023, the company purchased a loan portfolio from the FDIC at a significant discount alongside its venture team to increase its venture banking coverage.
CUBI reported a spectacular quarter with its 61.87% EPS surprise, a 23.97% return on Common Equity (ROCE), and an increase in net interest margin (tax equivalent) by 55 basis points from the previous quarter. Furthermore, the company outperformed its capital ratio goals with a Common Equity Tier 1 ratio of 11.3% in September 2023. This puts CUBI in the same league of financial stocks to buy.
Customers Bancorp CEO, Jay Sidhu, emphasized that its performance was due to the company’s emphasis on sustained deposit growth, robust liquidity, a diversified deposit base, and a focused approach to new loan production in a cautious environment.
We think CUBI’s positive outlook and adaptability make it a strong contender for one of the best bank stocks to buy.
Merchants Bancorp (MBIN)
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Merchants Bancorp (NASDAQ:MBIN) is a bank holding company that operates various subsidiaries specializing in three main banking segments:
Mortgage Warehousing: Conducts residential and commercial loan segmentation.
Banking: Offering consumers and businesses a wide variety of financial products and services.
Mortgage Banking Services: These government-sponsored mortgages are intended for healthcare and multi-family facilities. The subsidiaries include Merchants Bank, FMBI (Farmers-Merchants Bank of Illinois), and MAM (Merchants Asset Management, LLC).
MBIN ended its latest quarter on a positive note. To start, it beat analysts earnings expectations by 27.27%. The company grew its net income by 39%, while diluted EPS grew by 38% YoY. Merchants Bancorp also increased its tangible book value per common share by 24%. According to the company, this strong performance was due to its conservative underwriting, effective management of asset & liability duration, and cost controls. MBIN’s effective management and solid financial performance make it one of the most attractive bank stocks to buy and include in your portfolio.
Northeast Bank (NBN)
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Northeast Bank (NASDAQ:NBN) is a full-service bank mainly serving clients in Portland, Maine. The company operates in several key segments. Its Community Banking Division and Small Business Administration (SBA) National Division originates loans for the business. Its National Lending Division purchases discounted performing commercial estate loans. Meanwhile, the SBA National Division develops loans to help small businesses raise funds for operations. NBN’s community banking division is focused on originating loans directly to companies in its market area.
Northeast Bank reported a strong quarter, with its earnings beating analyst ratings of 28.85%. Net income increased by $8.30 million against the same quarter last year. According to the company’s report, the growth was due to its remarkable return on average equity and assets. Its National Lending division also had improved yields and increased volume. It’s therefore one of those financial stocks to consider.
The company reported that its past-due loans and nonperforming assets increased slightly but were still at healthy levels with improved capital ratios. This substantial improvement in earnings, financials, and strengthening capital ratios puts NBN on our list of top bank stocks to buy.
As of the date of publication, Rick Orford did not have any positions (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Rick Orford is a Wall Street Journal best-selling author, investor, influencer, and mentor. His work has appeared in the most authoritative publications, including Good Morning America, Washington Post, Yahoo Finance, MSN, Business Insider, NBC, FOX, CBS, and ABC News.
