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5 Top-Performing S&P 500 Bank Stocks of Q1 Worth a Look

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The first quarter of 2021 was quite a good one for U.S. stock markets. Both the S&P 500 and Dow Jones climbed to record highs, while the Nasdaq touched new highs in mid-February only to fall into a correction, down 10% from its highs, in just under a month.

Nonetheless, the overall performance was impressive as investors gained confidence in cyclical sectors like finance, energy and other economic rebound plays. The S&P 500 was up 5.8%, while the Dow Jones and Nasdaq gained 7.8% and 2.8%, respectively.

Banks are One of the Preferred Industries

Bank stocks regained investors’ confidence after a turbulent 2020. For the three months ended Mar 31, 2021, the S&P Banks Select Industry Index rallied more than 24%, while the same was down almost 12% last year.

One of the key themes of the quarter was the expectation of impressive economic rebound. The Federal Reserve, in its latest Summary of Economic Projections, noted that the U.S. economy will grow at a rate of 6.5% in 2021, up from the previous projection of 4.2%.

Apart from this, other favorable data like steadily declining unemployment claims, solid housing market and rising consumer confidence, along with the passage of a $1.9-trillion stimulus package, falling coronavirus infection rate and rise in vaccination coverage were the driving factors that supported faster economic recovery.

With gradual improvement of the economy, demand for loans will continue to rise. Also, steepening of the yield curve (the difference between short and long-term interest rates) is likely to have supported banks’ net interest margin in the last quarter. The yield on 10-year U.S. Treasury Bond was 1.74% at quarter-end, up 82 basis points from 0.92% at 2020-end.

Thus, net interest income — which constitutes a large portion of banks’ revenues — is expected to have received support from steepening of the yield curve and a modest rise in loan demand.

Also, the central bank stated that major banks can hike dividends and buybacks, effective second-half 2021, once they clear this year’s stress test. This further instilled investors’ confidence in the banking industry.

5 Best-Performing S&P 500 Bank Stocks

While most bank investors had a lot to cheer about in the January-March quarter, some stocks performed better than the others. The biggest winners in the S&P 500 Index were People's United Financial, Inc. (PBCT - Free Report) , Fifth Third Bancorp (FITB - Free Report) , Wells Fargo (WFC - Free Report) , Regions Financial (RF - Free Report) and Bank of America (BAC - Free Report) .

These stocks not only outperformed the S&P 500 Index but handily surpassed the Zacks Finance sector, which gained 10.1% in first-quarter 2021.

First-Quarter 2021 Price Performance


Here's a brief summary of the above-mentioned five best-performing S&P 500 bank stocks in the last quarter:

People’s United: Founded in 1842 and headquartered in Bridgeport, CT, People’s United is a diversified financial services company. It operates across Connecticut, Vermont, New Hampshire, Maine, Massachusetts and New York.

This Zacks Rank #3 (Hold) company has been growing through acquisitions, aided by a solid balance sheet and liquidity position. In February, the company signed an all-stock deal worth $7.6 billion to merge with M&T Bank Corporation.

Further, strong credit quality is another positive for People’s United. Though credit metrics were under pressure last year due to the coronavirus mayhem, the same is expected to improve with the normalization of activities.

Shares of People’s United rallied 38.4% in the first three months of 2021. For first-quarter 2021, the Zacks Consensus Estimate for earnings of 34 cents per share has been unchanged over the past 30 days. The figure suggests year-over-year growth of 3%.

Fifth Third Bancorp: With assets of $204.7 billion, Cincinnati, HO-based Fifth Third Bancorp has 1,134 full-service banking centers across 10 states throughout the Midwestern and Southeastern regions of the United States.

Fifth Third Bancorp has expanded non-interest income base over the years with help of strategic investments through North Star initiatives and the MB Financial buyout (closed in March 2019). These are expected to support revenue growth and result in expense savings.

Specifically, the company expects an annual pre-tax income benefit of $60-$75 million by 2022. Also, the transaction is likely to lower expenses by $255 million. Further, the bank remains focused on branch consolidation efforts.

Shares of this Zacks Rank #1 (Strong Buy) company jumped 35.8% in the last quarter. Also, the Zacks Consensus Estimate for earnings of 67 cents per share for first-quarter 2021 has moved 4.7% upward over the past 30 days. The figure indicates year-over-year growth of 415.4%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Wells Fargo: San Francisco-based Wells Fargo is one of the biggest financial services company in the United States, with $1.96 trillion in assets and more than $1.4 trillion in deposits. The company has more than 5,032 branches, broad ATMs network, and Internet and other distribution channels across North America and globally.

Post the disclosure of the sales scandal in September 2016, Wells Fargo encountered several sanctions, including a cap imposed by the Fed on asset growth in early 2018. Nonetheless, the company has come a long way since then, especially with the central bank’s recent approval of risk management and governance overhaul plan. It continues to invest in businesses to boost compliance and risk management capability.

Additionally, this Zacks Rank #3 company has been undertaking several steps including divestiture of non-core businesses to focus on core operations, boost efficiency and strengthen the balance sheet.

Shares of Wells Fargo gained 29.4% in the first three months of 2021. For first-quarter 2021, the Zacks Consensus Estimate for earnings of 61 cents per share have been revised 3.4% north over the past 30 days. The figure suggests substantial growth from 1 cent earned in the prior-year quarter.

Regions Financial: Headquartered in Birmingham, AL, Regions Financial is a financial holding company providing retail and commercial banking, trust, securities brokerage, insurance brokerage, mortgage, along with insurance products and services. As of Dec 31, 2020, it operated 1,400 banking offices and 2,000 ATMs across a 16-state network over South, Midwest and Texas.

Regions Financial continue to benefit from a favorable funding mix and focus on inorganic growth routes. Over the past few years, the company has been on an acquisition spree, as part of its efforts to boost the diversified business. As the company remains committed toward diversifying revenue streams, such acquisitions are expected to support its prospects.

Moreover, this Zacks Rank #3 company continues to take actions with respect to the Simplify and Grow initiative (launched in 2017), including streamlining its structure and refining branch network while making investments in new technologies, delivery channels and other drivers of growth. The bank aims to consolidate about 100 branches by 2021 (disclosed in 2019).

For the three months ended March, shares of Regions Financial rose 28.1%. Also, the Zacks Consensus Estimate for earnings of 47 cents per share for first-quarter 2021 has moved 2.2% upward over the past 30 days. The figure suggests year-over-year growth of 213.3%.

Bank of America: Headquartered in Charlotte, NC, Bank of America is one of the largest financial holding companies in the United States. With total assets worth $2.82 trillion as of Dec 31, 2020, it provides a diverse range of banking and non-banking financial services, as well as products.

Bank of America continues to align the banking center network according to customer needs. The bank is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades by 2021. Further, this Zacks Rank #3 company plans to add 2,200 more ATMs to its network. These initiatives, along with the success of Zelle and Erica, will enable it to improve digital offerings, as well as cross sell several products.

Also, the acquisition of Axia Technologies is likely to further strengthen the bank’s position in the lucrative healthcare payments solution market. Prudent expense management continues to support the company’s financials. While Bank of America restricted dividend payouts to 18 cents per share, it resumed share repurchases in first-quarter 2021 and authorized $2.9 billion for the same.

Over the last three months, the stock has gained 27.6%. Moreover, for first-quarter 2021, the Zacks Consensus Estimate for earnings of 61 cents per share have been revised 1.7% north over the past 30 days. The figure implies 52.5% year-over-year growth.

Zacks Top 10 Stocks for 2021

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