VBTX - Business First CrossFirst Veritex cut at RayJay as rising deposit betas loom

Shares of CrossFirst Bankshares ( NASDAQ: CFB ), -3.7% , Business First Bancshares ( NASDAQ: BFST ), -3.9% , and Veritex Holdings ( NASDAQ: VBTX ), -1.7% , all slid in Thursday morning trading after Raymond James analyst Daniel Tamayo downgraded the regional lenders to Market Perform from Outperform.

On a broad note, Tamayo pointed out in a note to clients that the Federal Reserve's aggressive pace of interest-rate increases has increased fears about the U.S. economy tipping into recession. Therefore, bank stocks could see some downward pressure if loan losses increase in the future.

The rising rate environment also likely will force deposit betas to further accelerate, in a move that could drive higher interest expense and lower margins.

The analyst noted that BFST, in particular," could face greater investor scrutiny as the economy heads into a recession given its limited loss history."

For CFB, while the stock is trading at a 20% discount to peers on 2024 EPS, "we are skeptical how its loan book will perform should we enter a challenging credit cycle, which we view as an increasingly likely scenario," Tamayo wrote.

The downbeat coverage of VBTX, meanwhile, reflects a "relative lack of catalysts in coming quarters." Tamayo sees a number of headwinds that could drive negative EPS revisions in the coming quarters, including margin pressure given rising deposit betas as well as "high concentration of CRE/construction loans to total risk-based capital at 310%/124% vs. low current reserve allocations in these categories."

Take a look at how each of the banks' stats compare to one another in the Peers tab .

See why Seeking Alpha contributor LWF Equity Research views Veritex stock as a Buy .

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