Beware of These 5 Top Performing S&P 500 Banks From Q3
Bank stocks remain a favorite for investors after a turbulent 2020. In the third quarter of 2021, the S&P Banks Select Industry Index rose 3.1%, down from nearly 12% last year.
One of the key themes in the third quarter of the year was the Federal Reserve’s likely hawkish stance. At the end of the two-day FOMC meeting on September 22, the central bank signaled that interest rates could rise at the end of 2022, a year earlier than expected, and an official decision to cut purchases of The bonds could be announced in the November 2021 meeting, if recovery progress remains on track.
Apart from that, the continued expectation of an impressive economic rebound has led to bullish sentiments from investors. The Fed, in its latest summary of economic projections, noted that the US economy will grow 5.9% in 2021. Steadily declining jobless claims, a strong real estate market, and growing consumer confidence are just a few. one of the main factors that will continue to keep the economy going.
While interest rates will remain at near zero levels at least for now, the Fed hinting at rate hikes by the end of 2022 will support bank finances over time. In addition, as the economic recovery gains momentum, the demand for loans (which had been weak so far) will increase.
The steepening of the yield curve (the difference between short and long term interest rates) is likely to support banks’ net interest margin. Although the yield on 10-year US Treasury bonds of 1.49% at the end of September was relatively stable on a sequential basis, it increased by 57 basis points from 0.92% at the end of 2020. Thus, net interest income – which constitutes a large part of bank income – will receive some support.
Banks are also undertaking business rationalization / expansion initiatives (both domestic and international). These efforts are likely to support their sources of fee income and lead to revenue growth.
Following the Fed’s approval after completing this year’s stress tests in June, the big banks announced robust capital deployments (including dividend hikes and share buybacks) starting in the third quarter 2021. This indicates that banks are able to withstand micro / macroeconomic shocks, stay well above regulatory capital requirements and return more capital to shareholders. It has also instilled investor confidence in the banking sector.
5 best performing bank stocks in the S&P 500
While most banking investors have had much to celebrate over the past three months, some stocks have outperformed others. The biggest winners of the S&P 500 index were Zions Bancorporation IF WE, SVB Financial SIVB, Comerica CMA, Fifth Third Bancorp FITB as well as Huntington Bancshares HBAN.
In the third quarter of 2021, these stocks significantly outperformed the 3.9% rise in the S&P 500 Index (the worst quarter of the index since March 2020) and the 2.3% growth in the Zacks Finance sector.
Price performance in the third quarter
Image source: Zacks Investment Research
Here is a brief description of the five bank stocks mentioned above:
If we : Based in Salt Lake City, Utah, Zions is a diverse financial services provider, operating an extensive network of nearly 430 bank offices. Its footprint spans 11 western states: Utah, Idaho, California, Nevada, Arizona, Colorado, Texas, New Mexico, Washington, Oregon and Wyoming .
Strong loans, a strong financial position, and business simplification initiatives will continue to support Zions. The bank’s strong non-interest bearing deposit balance also helps its finances. The company’s initiatives to efficiently deploy the capital generated by these deposits and expectations of a gradual increase in loan demand will likely support income growth despite falling rates.
Zions’ capital deployment activities remain impressive. In July, this company Zacks Rank # 3 (Hold) declared an 11.7% increase in its quarterly dividend, while in August, the bank authorized additional share buybacks of $ 200 million, after having achieved $ 125 million (announced in July) for the repurchase authorization initially scheduled for the third quarter of 2021.
You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.
Zions shares gained 17.1% in the third quarter of 2021. For the quarter, Zacks’ consensus estimate of earnings of $ 1.38 per share was revised 1.5% north over the past seven last days.
SVB Financial: Headquartered in Santa Clara, California, SVB Financial is a diversified financial services company. Established in 1999, it operates through, among others, Silicon Valley Bank, its main subsidiary, offering a wide range of banking and financial products and services.
SVB Financial remains focused on its organic growth strategy, as evidenced by the steady increase in loans, deposits and net interest income in recent years. The company is making efforts to expand globally.
SVB Financial is growing through strategic buyouts, which will continue to support its position as a leading provider of innovative corporate finance solutions. In July, the company acquired Boston Private Financial Holdings, Inc., which will further strengthen its private banking and wealth management offerings. In December 2020, it had acquired the debt investing business of WestRiver Group and in 2019 the company acquired Leerink Holdings LLC, now renamed SVB Leerink.
During the June-September quarter, the shares of this Zacks Rank # 3 share gained 16.3%. Additionally, for the third quarter of 2021, Zacks’ consensus estimate of $ 5.11 per share has risen slightly over the past seven days.
Comeric: Based in Dallas, Texas, Comerica provides banking and financial services in three main geographic markets: Texas, California, Michigan, and Arizona and Florida. In addition, the company operates in many other US states, as well as Canada and Mexico.
Comerica’s focus on improving operational efficiency led to the introduction of GEAR Up initiatives in mid-2016. Since the implementation of this initiative, the bank has consolidated many banking centers, significantly reduced pension expenses and laid off a number of employees. These efforts have resulted in an improvement in the efficiency ratio and return on equity over time.
Comerica remains focused on the revenue growth strategy. With the gradual recovery of loan commitments, the strong loan pipeline and the economic recovery, the Company’s loan balance is expected to continue to improve, fueling growth in net interest income.
A manageable level of debt, superior long-term credit ratings, a strong balance sheet and impressive credit standing are other catalysts supporting Comerica. In addition, the capital deployment activities of this Zacks Rank # 3 company are encouraging and sustainable.
Over the past three months, the stock has gained 12.9%. For the third quarter of 2021, Zacks’ consensus estimate of earnings of $ 1.66 per share has remained unchanged for the past seven days.
Fifth Third Bancorp: With assets of $ 205 billion, Fifth Third Bancorp, based in Cincinnati, HO, has 1,096 full-service banking centers in 10 states in the Midwestern and Southeastern regions of the United States.
Its expansion of the non-interest income base over the years through strategic partnerships and acquisitions in different sectors such as healthcare (including the acquisition of Coker Capital in 2020 and the takeover of Provide in August 2021) will support vertical markets and generate revenue. growth, expense savings as well as operational excellence.
In addition, the company remains focused on optimizing branches to strengthen its presence in high growth markets. In fact, Fifth Third Bancorp is reallocating its branch network to improve its presence in the Southeast and decrease its presence in the Midwest. Thus, nearly 25 branch openings per year until 2025 are targeted, while the bank is in the process of closing 42 additional branches by January 2022 (mainly in the Midwest).
In addition, a strong balance sheet and superior long-term credit ratings from major rating agencies should continue to support the growth of the business. Additionally, Fifth Third Bancorp’s sustainable capital deployments reflect a strong liquidity position and will continue to increase shareholder value.
Shares of this company Zacks Rank # 3 rose 11.1% for the third quarter of the year. Zacks’ consensus estimate of 90 cents per share for the quarter has remained unchanged for the past seven days.
Huntington Bancshares: Columbus, OH, Huntington Bancshares is a diversified multi-state regional banking holding company. Its inorganic expansion is shifting, and growth in loan and deposit balances is expected to drive long-term growth.
Huntington Bancshares is well positioned to grow through strategic buyouts given the strong liquidity. Over the past few years, it has broadened its footprint with a number of acquisitions. Last June, Huntington Bancshares completed the merger with TCF Financial Corporation to form one of the 25 largest US banking holding companies.
The agreement, along with others, has strengthened the company’s position in existing markets, established a presence in new markets and combined complementary activities. Thus, such opportunistic acquisitions will allow Huntington Bancshares to achieve significant synergies and fuel its growth. In addition, the normalization of asset quality (following the chaos associated with COVID 2020), a strong liquidity position and the economic recovery are expected to continue to support the company’s finances.
During the June-September quarter, the stock appreciated 8.4%. Zacks’ consensus estimate of 37 cents per share for the third quarter has remained unchanged for the past seven days.
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Fifth Third Bancorp (FITB): Free Stock Analysis Report
Comerica Incorporated (CMA): Free Stock Analysis Report
Huntington Bancshares Incorporated (HBAN): Free Stock Analysis Report
Zions Bancorporation, NA (ZION): Free Stock Analysis Report
SVB Financial Group (SIVB): Free Stock Analysis Report
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