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How Will The Market Volatility Impact Community Banks?

A trio of catalysts in recent weeks has sent shockwaves through the markets. And though it's too soon to tell how the coronavirus will impact the U.S.

Benzinga · 03/10/2020 15:16

A trio of catalysts in recent weeks has sent shockwaves through the markets. And though it's too soon to tell how the coronavirus will impact the U.S. economy, the Federal Reserve’s emergency 0.5% rate cut has immediate ramifications for the banking sector.

The 10-year U.S. Treasury bond yield fell below 1% for the first time ever in response, and all of a sudden the near-term picture for bank investors has gotten a lot murkier. For investors focused on community banks, there will be a chance to get some clarity this week at the OTCQX Community Bank Investor Conference on Thursday.

The third Virtual Investor Conference of 2020 will include presentations from 10 C-suite executives representing community banks across the country, with each providing an update on their latest financials and take questions from investors. Virtual Investor Conferences is an online investor conference series developed to give retail and institutional investors access to company executives. Since its launch in 2010, it has hosted more than 175 events with nearly 1,100 public companies.

Because presenters and investors join through the online portal, organizers expect the turnout will not be impacted by the recent travel restrictions recently implemented by many organizations.

In addition to the investor presentations, Joseph Fenech, managing principal and head of research at Hovde Group, will provide a high-level overview of how the rate cut will impact the sector and what trends investors should watch for.

“Put it in a nutshell, it’s very hard for banks to make money with the 10-year where it’s at and the shape of the curve,” Fenech told Benzinga. “We’ll have pockets of potential offsets, mortgage refinancing is likely picking up quite a bit, funding costs are coming down, but in my opinion that and more is going to be mitigated by the impact of net interest margins if we stay at this level of interest rates.”

Fenech said now is the time for community bank investors to be “valuation agnostic” and focus more on banks with high levels of mortgage banking and fee income not tied to wealth management.

“Do worry so much about buying the cheapest banks, because those aren’t necessarily going to be the ones that rebound here,” he said. “Buy the ones where, if we continue to struggle with interest rates, that their EPS estimate will be least impacted. So you have downside protection in terms of the strength of their business model.”

Fenech added that the spread of coronavirus and subsequent rate cut has dramatically shifted the picture for the sector, but banks as a whole are well-capitalized for a potential economic downturn.

“The reality is the foundation underneath the sector as a whole is very strong. The banks are actually very well prepared for whatever’s coming down the pipe from a safety and soundness standpoint, there’s just not a lot of reasons to get excited about it either. So that’s sort of the sentiment right now. There’s a little irony there that the banks are as well-prepared as they are, but there’s just not a lot of reasons to get excited on the upside.”

To learn more about attending Thursday’s conference, click here.

Below is the schedule for the conference. Each presentation is followed by a live Q&A session with attendees and is available on demand.

9:30 am ET: Keynote Speaker—Joseph Fenech, Managing Principal & Head of Research, Hovde Group
Speaker bio:
As head of Hovde Group’s Equity Research Department, Mr. Fenech leads a team responsible for coverage of the U.S. regional and community bank sector. In addition to serving as Head of Research, Mr. Fenech maintains coverage of regional and community bank stocks throughout the United States. He has more than twenty years of experience covering the bank sector as an equity research analyst and former investment banker. Mr. Fenech is also a member of Hovde Group’s Management Operating Committee, which is tasked with the day-to-day management of the firm and implementation of the longer-term strategic vision and plan. Mr. Fenech joined Hovde in 2014 to help spearhead the buildout of the firm’s Equity Research, Sales and Trading platform, having previously served as Managing Director for Sandler O’Neill & Partners, L.P., in New York, where he covered bank stocks across the U.S.

10:00 am ET: Royal Financial, Inc. (OTCQX: RYFL)
Speaker
: Leonard Szwajkowski, President & CEO
About the company: Royal Financial, Inc. was formed as a Delaware corporation to be the holding company for Royal Savings Bank. Founded in 1887, Royal Savings Bank is a community and customer oriented savings bank organized under the laws of the State of Illinois. The Bank has nine branches and two loan offices in the Chicago land area.

10:30 am ET: First Resource Bank (OTCQX: FRSB)
Speaker
: Glenn B. Marshall, President & CEO
About the company: First Resource Bank is a community bank headquartered in Chester County, Pennsylvania, located about 35 miles west of Philadelphia. The Bank opened in 2005, operates with two physical branches and currently has approximately $300 million in assets. The combination of high touch branches with a product offering that includes the same cutting edge technology options offered by national providers makes it a hybrid community bank.

11:00 am ET: Grand River Commerce Inc. (OTCQX: GNRV)
Speaker
: Robert P. Bilotti, Chairman & CEO
About the company: Grand River Bank is locally owned, locally managed & built to serve the needs of business in West Michigan.

11:30 am ET: Suncrest Bank (OTCQX: SBKK)
Speaker
: Ciaran McMullan, President & CEO
About the company: Nominated for an IR Magazine—U.S. award, Suncrest Bank provides various banking products and services to small and middle-market businesses and individuals in California. The company offers business banking products and services, which include checking and savings accounts, and certificates of deposit; loan products, such as commercial real estate loans, working capital lines of credit, equipment financing and leasing products, and construction and unsecured loans; and cash management services. It also offers personal banking products and services, including checking, savings, and money market accounts; certificates of deposit; personal loans and line of credits, auto loans, and investment real estate loans. In addition, the company provides agricultural real estate loans, production finance, development loans, and long term real estate financing products; and SBA loans, small business guaranteed loans, USDA B&I loans, Farmer Mac loans, and FSA program loans, as well as online and mobile banking, e-statements, remote deposit capture, financial calculators, and other services. As of December 31, 2019 it is operating seven Branches in California. The company was founded in 2008.

12:00 pm ET: InsCorp, Inc. (OTCQX: IBTN)
Speakers
: Jim Rieniets, President & CEO; Mark Bruchas, Executive Vice President & CFO
About the company: Holding company and parent company of InsBank, Inc. InsBank, Inc. is the parent Co. of InsBank Finance, Inc. and Finworth Mortgage, LLC.

12:30 pm ET: Communities First Financial Corporation (OTCQX: CFST)
Speakers
: Steve Miller, CEO & President; Steve Canfield, EVP & CFO
About the company: Communities First Financial Corporation ("Communities First") is the parent holding company of Fresno First Bank, a community bank incorporated on July 14, 2005 and dedicated to meeting the banking needs of businesses, professionals, and successful individuals in Central California.

1:00 pm ET Freedom Bank of Virginia (OTCQX: FDVA)
Speaker
: Joe Thomas, President & CEO
About the company: The Freedom Bank of Virginia, founded on July 23, 2001, is a local, full-service bank utilizing an optimized network of sales offices, talented banking professionals, industry expertise and innovative technology to build client relationships throughout the Northern Virginia/DC MSA. Freedom Bank has a full portfolio of financial products, including extensive mortgage offerings, to serve the business and personal banking needs of their clients and communities. The Bank is dedicated to providing compelling ideas, relevant financial products and exceptional service to clients in the way they wish to be served.

1:30 pm ET: United Bancorporation of Alabama, Inc. (OTCQX: UBAB)
Speaker
: Robert R. Jones III, President & CEO
About the company: United Bank has a strong history as a Community Bank. Founded in 1904, we are proud of our history and commitment to the communities we serve. United Bank's mission statement, "Strength through Service Excellence" affirms our commitment to our customers by developing financial products and services that help our customers and communities prosper and achieve their goals. In 2012, United Bancorporation (UBA) the parent company of United Bank deregistered its common stock with the Securities Exchange Commission (SEC). This was made possible by the passage of the Jobs Act. Because of this, UBA is no longer required to file with the SEC. SEC historical filings are located on this site. United Bank is proud to serve the communities of South Alabama and Southwest Florida.

2:00 pm ET: Orange County Bancorp, Inc. (OTCQX: OCBI)
Speakers
: Michael Gilfeather, President & CEO; Robert Peacock, CFO
About the company: Orange County Bancorp, Inc. is the parent company of Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc. Orange Bank & Trust Company is an independent community bank beginning with a dream of 14 founders over 125 years ago and through conservative banking practices, innovation and commitment to its community, now has assets of $1 billion. In recent years, Orange Bank & Trust Company has added branches in Rockland and Westchester Counties. Hudson Valley Investment Advisors, Inc. is a Registered Investment Advisor in Goshen, NY. It was founded in 1996 and was acquired by the Company in 2012. For more information, visit orangebanktrust.com or hviaonline.com.

2:30 pm ET: Kish Bancorp, Inc. (OTCQX: KISH)
Speaker
: William P. Hayes, CEO
About the company: Kish Bancorp, Inc. is a diversified financial services corporation headquartered in Belleville, PA with executive offices in State College, PA. Kish Bank, a subsidiary of Kish Bancorp, Inc., operates fourteen banking offices and financial centers in Centre, Mifflin, and Huntingdon counties. In addition to Kish Bank, other business units include: Kish Insurance, an independent property and casualty insurance agency, Kish Financial Solutions, which offers fiduciary and wealth management advisory services; Benefit Management Group, which provides employee benefits consulting services; and Kish Travel, a full-service travel agency.

To learn more about attending Thursday’s conference, click here.

Image source: Wikimedia Commons