Higher Rates Put Spotlight on Solidly Funded US Bank Stocks

The recent rise in interest rates has sparked debate about whether the Federal Reserve will increase rates again. This has led to increased scrutiny of large US bank stocks, with investors reassessing their earnings outlook and valuations. For banks with solid balance sheets and broad deposit bases, a rate hike could have both positive and negative effects.

Metropolitan Bank Holding (MCB) is one such bank that may benefit from higher rates. Its profits are closely tied to net interest margins, and the company is leaning into higher quality fee income through payments and digital platforms. The stock is trading well below its estimated fair value, making it an attractive option for investors who focus on valuation gaps.

However, MCB also faces challenges, including a relatively low allowance for bad loans and past shareholder dilution. Bank First (BFC) is another bank that gives focused exposure to US interest rate trends. Its revenue comes entirely from core banking, and it has a history of double-digit earnings growth. Management is experienced, the dividend has been raised, and recent buybacks signal confidence.

OceanFirst Financial (OCFC) provides focused exposure to rate-driven US regional banking profitability. The company has completed its Flushing merger, sold $1.3 billion in New York multifamily loans to cut rent-regulated exposure, and brought in $225 million of new capital. Analysts expect fast earnings and revenue growth from its expanded commercial banking platform.