Three bank failures and an outflow of deposits has severely shaken investor trust in regional banks, yet many of these firms possess solid fundamentals and diversification while bank insiders continue to purchase shares in them. After Silicon Valley Bank and Signature Bank collapsed, the KBW Regional Banking Index took an immediate dip. But individual risks of smaller lenders mean they could still provide investors with substantial returns. 1. PacWest Bancorp PacWest Bancorp shares tanked on Thursday amid renewed fears of a widespread banking crisis. The Los Angeles-based bank announced that it is exploring strategic options, which may include selling assets. Unrest within the sector has been caused by concerns over unrealized losses from bond investments and customers seeking higher-yield alternatives for deposits. Worries were further compounded when First Republic Bank was taken over and sold off by the government early last week, sparking even greater investor anxiety; as a result, KBW regional banking index has declined 11% this week through Thursday. Analysts counter that market pessimism may be exaggerated. Hovde Group analysts, for instance, note that articles claiming half of all US banks were insolvent were based on flawed analysis; their experts point out that First Republic's collapse was due to "extraordinary events" while most depositors have their money up to $250,000 protected under FDIC protections. JPMorgan analyst Steven Alexopoulos upgraded Western Alliance, Comerica and Zions from neutral to overweight status at JPMorgan. According to him, recent stock declines among regional bank stocks may have been unanchored from fundamentals; therefore he expects it to subside once investors gain faith that regional bank can weather a stress test. Meanwhile, PacWest's deposit stabilization and planned asset sales may help its stock. 2. Western Alliance Bancorp Western Alliance Bancorp shares fell nearly 50% on Thursday after the Los Angeles-based bank announced it was considering strategic options and following an article published in Financial Times which quoted unnamed sources alleging the bank had started listing assets for sale. Even a statement issued by Western Alliance did little to calm investors who have become wary about banks that hold substantial uninsured deposits. Janney analyst Chris Marinac of Janney Group stated on S&P Global's Street Talk podcast that the recent decline of PacWest and Western Alliance share prices is caused by fear-driven misinformation, but both banks are actually not as troubled as anticipated: deposit outflows have decreased since Silicon Valley Bank and Signature Bank collapsed, as have FHLB/BTFP borrowings, which are among the highest of any US regional bank. Furthermore, these companies have experienced positive customer responses in their communities - something not seen elsewhere in banking sectors where turbulence has led some consumers to close savings accounts according to research from the Federal Reserve. That could have long-term negative repercussions for banking industry which must regain consumer trust by stopping current hysteria and addressing root causes of investor anxiety such as asset/liability mismatches as quickly as possible. 3. Zions Bancorp Regional bank shares reached two-year lows this week after the collapse of First Republic Bank and strong earnings reports from superregionals, such as Zions Bancorp in Salt Lake City and Phoenix-based Western Alliance Bancorp both experienced 17% drops despite efforts to assure investors there had not been unusual deposit outflows, with Truist Financial, KeyCorp, Valley National Bank Corp, and Comerica each experiencing between 2-6% declines. Zions Bancorp, National Association is a bank with national reach that offers a full suite of banking products and services to Arizona, California, Colorado, Idaho, Montana, Nevada, Oregon Utah Washington Wyoming. Their presence can be found through local management teams operating under distinct brands across Arizona California Colorado Idaho Montana Nevada Oregon Utah Washington Wyoming as well as selling loan portfolios to other banks for revenue generation. Good news from the sector on Friday was just what was needed to jolt stocks back into action. JPMorgan analyst Steven Alexopoulos upgraded Western Alliance, Comerica and Zion Bancorp stocks to overweight from neutral. He believes that recent selloff has fed off itself and that an intermediate term favorable re-rating could happen quickly; expectant regulatory changes such as higher FDIC insurance levels or an end to short selling ban would provide further support; plus bank insiders have been buying up stock recently. 4. Fifth Third Bancorp Janney Montgomery Scott director of research Christopher Marinac views the recent decline of regional bank stocks as an investment opportunity, saying they may have "slipped on a banana peel," yet fundamental business fundamentals remain intact. Marinac notes that while there may be some unease about the health of the industry, he does not anticipate it worsening to such an extent that banks experience a run on deposits. He points out that different dynamics exist today than during the Great Recession when declining credit led banks to fail within months - depositors today can withdraw their money quickly should one of their local banks experience difficulty and this results in significant stock price declines. PacWest Bancorp experienced a 50% drop on Thursday and announced its intention to explore strategic alternatives. Meanwhile, Phoenix-based Western Alliance Bancorp and Dallas-based Comerica both saw substantial decreases. Fifth Third Bancorp remains an attractive business despite recent selloff, boasting solid revenue and earnings growth over the past three years, an attractive dividend payout ratio and stable balance sheet. Analysts from DA Davidson such as Jeremy Yokum also love Fifth Third's strong deposit inflows which have been steady and well diversified; should industry runoff be avoided, he expects its EPS growth at above market rates during 2023. 5. PNC Financial PNC Financial is a diversified financial services company offering retail banking, corporate & institutional banking and asset management services across its US branch network. Established in Pittsburgh Pennsylvania in 1845 and with a history dating back to their formation, this long-standing institution has undergone substantial growth and diversification over its existence; making several nonbank acquisitions to expand their offerings further and enhance their presence. Due to bank failures and worries of economic slowdown or recession, investors are selling regional banks at a discount, according to Dave Sekera of Morningstar's US market strategy team. Sekera believes this sell-off provides an opportunity to purchase shares of some solid companies at reduced prices. He notes that investors have been selling regional bank stocks indiscriminately recently; some can even be acquired for significantly below their fair values. He believes the problems facing this sector will ease and earnings will begin to recover by next year. He advises investors against investing directly in individual regional banks during such turbulent times, but suggests there are alternative means of accessing this sector without running the risk of individual bank failure. One approach would be buying an exchange-traded fund that holds multiple regional bank stocks to reduce this risk and alleviate having to monitor each individual bank for potential weaknesses in its balance sheets. 6. First Republic Bank First Republic Bank was the largest regional bank to fail recently, boasting assets totaling $229 billion at year's end and second only to Washington Mutual which had $307 billion at that time. Their troubles stemmed from poor risk management practices coupled with social media-driven bank runs from tech customers as well as federal Reserve efforts to combat inflation by increasing interest rates, which caused many long-term loans held by them to depreciate in value over time. On Monday, when Bank of America reported its first-quarter results, investors were stunned to learn it had lost over $100 billion since Silicon Valley Bank and Signature Bank collapsed in March. To cover these losses quickly, a consortium of large banks pledged $30 billion as emergency capital. However, deposit outflows from First Republic were an unmistakable reminder of just how fragile regional bank stocks can be for individual investors and that caution must be exercised when investing in regional bank stocks. JPMorgan's Steven Alexopoulos noted on Friday morning in an upgrade note to overweight Western Alliance, Comerica and Zions that selloff had fed itself further and that these banks were at "deeply discounted valuations." He concluded by noting how quickly markets react; adding it won't take much for them to rerate upward.