Back to top

Image: Bigstock

Watch Out for These 5 Top-Performing S&P 500 Banks of Q3

Read MoreHide Full Article

Bank stocks continue to be one of the investor favorites after a turbulent 2020. During third-quarter 2021, the S&P Banks Select Industry Index rallied 3.1%, while the same was down almost 12% last year.

One of the key themes during the third quarter of the year was the Federal Reserve’s likely hawkish stance. At the end of the two-day FOMC meeting on Sep 22, the central bank signaled that interest rates could increase in late 2022, a year earlier than expected, and an official tapering decision to scale back bond buying might be announced at the November 2021 meeting, if the recovery progress remains on track.

Apart from this, continued expectation of impressive economic rebound led to bullish investor sentiments. The Fed, in its latest Summary of Economic Projections, noted that the U.S. economy will grow at a rate of 5.9% in 2021. A steady fall in unemployment claims, solid housing market and rising consumer confidence are some of the major factors that will continue to drive the economy.

Though interest rates will remain at near-zero levels at least for now, the Fed hinting at rate hikes by 2022-end is going to support banks’ financials over time. Further, as economic recovery gains traction, demand for loans (that had been soft so far) will rise.

The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margin. Though the yield on 10-year U.S. Treasury Bond of 1.49% at September-end was relatively stable on a sequential basis, the figure was up 57 basis points from 0.92% at 2020-end. Thus, net interest income — which constitutes a large portion of banks’ revenues — will get some support.

Banks are also undertaking business streamlining/expansion initiatives (both domestic and international). These efforts are likely to provide support to their fee income sources and lead to top-line growth.

Following the nod from the Fed after clearing this year’s stress tests in June, major banks announced robust capital deployments (including dividend hikes and share repurchases) effective third-quarter 2021. This indicates that banks are capable of withstanding micro/macro-economic shocks, remain handily above regulatory capital requirements and return more capital to shareholders. This has also instilled investors’ confidence in the banking industry.

5 Top-Performing S&P 500 Bank Stocks

While most bank investors have had a lot to cheer about in the last three months, some stocks performed better than others. The biggest winners within the S&P 500 Index were Zions Bancorporation (ZION - Free Report) , SVB Financial (SIVB - Free Report) , Comerica (CMA - Free Report) , Fifth Third Bancorp (FITB - Free Report) as well as Huntington Bancshares (HBAN - Free Report) .

In third-quarter 2021, these stocks handily outperformed the S&P 500 Index’s rise of 3.9% (the index’s worst quarter since March 2020) and the Zacks Finance sector’s 2.3% growth.

Price Performance During Q3

Zacks Investment ResearchImage Source: Zacks Investment Research

Here's a brief description of the above-mentioned five bank stocks:

Zions: Salt Lake City, UT-based Zions is a diversified financial service provider, operating a widespread network of nearly 430 banking offices. Its footprint spans across 11 western states — Utah, Idaho, California, Nevada, Arizona, Colorado, Texas, New Mexico, Washington, Oregon and Wyoming.

Robust loans, strong capital position and business simplifying initiatives will continue to support Zions. The bank's solid non-interest-bearing deposits balance also aids its financials. The company’s initiatives to efficiently deploy the capital generated from these deposits and expectations of a gradual rise in loan demand will likely support revenue growth despite lower rates.

Zions’ capital deployment activities remain impressive. In July, this Zacks Rank #3 (Hold) company declared an 11.7% hike in its quarterly dividend, while in August, the bank authorized an additional $200 million share repurchases, after having completed $125 million (announced in July) for buyback authorization initially set forth for third-quarter 2021.

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

Shares of Zions have gained 17.1% during third-quarter 2021. For the quarter, the Zacks Consensus Estimate for earnings of $1.38 per share has been revised 1.5% north over the past seven days.

SVB Financial: Headquartered in Santa Clara, CA, SVB Financial is a diversified financial services company. Incorporated in 1999, it operates through, among others, the Silicon Valley Bank, its primary subsidiary, providing a wide range of banking and financial products as well as services.

SVB Financial remains focused on organic growth strategy, as is evident from a consistent rise in loans, deposits and net interest income over the past several years. The company is undertaking efforts to expand globally.

SVB Financial is expanding through strategic buyouts, which will continue supporting its position as one of the foremost providers of financing solutions to innovative companies. In July, the company acquired Boston Private Financial Holdings, Inc., which will further strengthen its private bank and wealth management offerings. In December 2020, it had acquired the debt investment business of WestRiver Group and in 2019, the company acquired Leerink Holdings LLC, now renamed SVB Leerink.

During the June-September quarter, shares of this Zacks Rank #3 stock have gained 16.3%. Also, for third-quarter 2021, the Zacks Consensus Estimate for earnings of $5.11 per share has moved marginally upward over the past seven days.

Comerica: Headquartered in Dallas, TX, Comerica delivers banking and financial services in three primary geographic markets — Texas, California, Michigan as well as Arizona and Florida. Also, the company has operations in numerous other U.S. states, and 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 numerous banking centers, significantly lowered retirement plan expenses and retrenched a number of employees. These efforts have resulted in an improvement in efficiency ratio and return on equity over time.

Comerica remains focused on revenue growth strategy. With gradually recovering loan commitments, robust loan pipeline and recovery of the economy, the company’s loans balance is expected to continue improving, thereby stoking net interest income growth.

A manageable debt level, investment-grade long-term credit ratings, solid balance sheet position and impressive credit quality are other catalysts supporting Comerica. Additionally, this Zacks Rank #3 company’s capital deployment activities are encouraging and sustainable.

Over the last three months, the stock has gained 12.9%. For third-quarter 2021, the Zacks Consensus Estimate for earnings of $1.66 per share has been unchanged over the past seven days.

Fifth Third Bancorp: With assets of $205 billion, Cincinnati, HO-based Fifth Third Bancorp has 1,096 full-service banking centers across 10 states throughout the Midwestern and Southeastern regions of the United States.

Its expansion of the non-interest income base over the years with help of strategic partnerships and acquisitions in different industries such as healthcare (including the acquisition of Coker Capital in 2020 and buyout of Provide in August 2021) will support commercial verticals and result in revenue growth, expense savings as well as operational excellence.

Further, the company remains focused on branch optimization to enhance its presence in high-growth markets. In fact, Fifth Third Bancorp is re-allocating its branch network to enhance its footprint in the Southeast and diminish presence in the Midwest. Thus, nearly 25 branch openings per year through 2025 are targeted, while the bank is on track to close 42 additional branches by January 2022 (mainly in the Midwest).

Additionally, a strong balance sheet and investment-grade long-term credit ratings from leading credit rating agencies are likely to continue supporting the company’s growth. Also, Fifth Third Bancorp’s sustainable capital deployments reflect a solid liquidity position and will keep enhancing shareholder value.

Shares of this Zacks Rank #3 company grew 11.1% for the third quarter of the year. The Zacks Consensus Estimate for earnings of 90 cents per share for the quarter has been unchanged over the past seven days.

Huntington Bancshares: Columbus, OH, Huntington Bancshares is a multi-state diversified regional bank holding company. Its inorganic expansion moves, and growth in loans and deposits balance are expected to drive long-term growth.

Huntington Bancshares is well poised to expand via strategic buyouts, given robust liquidity. Over the past few years, it has expanded its footprint with a number of acquisitions. This June, Huntington Bancshares closed the merger with TCF Financial Corporation to form one of the top 25 U.S. bank holding companies.

The deal, along with others, has strengthened the company’s position in existing markets, established a presence in new markets and combined complementary businesses. Thus, such opportunistic acquisitions will enable Huntington Bancshares to realize meaningful synergies and fuel growth. Further, normalizing asset quality (following the 2020 COVID-related mayhem), solid liquidity position and economic recovery are likely to keep supporting the company’s financials.

During the June-September quarter, the stock rallied 8.4%. The Zacks Consensus Estimate for earnings of 37 cents per share for the third quarter has been unchanged over the past seven days.