by Dan Burrows | January 27, 2014 11:20 am
When it comes to financials so far in 2014, the larger regional bank stocks are clobbering their bigger cousins by a wide margin, as well as the market and their benchmark too.
Big banks collectively had a decent quarterly earnings season — even if they had to keep juicing profits with accounting rules more than actual growth — but bank stocks have generated performances that are ho-hum to bad.
For example, JPMorgan Chase (JPM) stock is down 4% so far this year. Wells Fargo (WFC) stock is up, but only by 1.5%. Bank of America (BAC) stock is the only exception, up roughly 5% in 2014.
But the market hasn’t exactly been hot this year. A couple of ugly down days has the S&P 500 off more than 1% early in 2014.
But in a bright spot for financials, some of the larger regional bank stocks are quietly off to a great start in January. A solid earnings season has helped a lot. Heading into reporting season, the regional banks industry was projected to show the strongest growth in net interest income among financials, according to data from FactSet. Furthermore, provisions for loan losses continued to decline rapidly, and regional banks are showing the highest growth in loans.
For regional bank stocks as a whole, the year hasn’t been so good. The Regional Bank SPDR ETF (KRE) is off about 1%. But some regional banks stocks are bucking the trend with excellent gains. Here are three regional bank stocks leading financials so far this year:
PNC Financial (PNC) is a super-regional bank, sporting a market capitalization of $43.64 billion. Happily, this leviathan of the regional bank stocks is doing some heavy lifting when it comes to financials. PNC stock is up 6% so far this year.
PNC’s latest quarterly results showed that profit surged 46% to beat Wall Street’s estimate by a whopping 20 cents per share. Cost cuts and improved credit quality helped drive the quarter, as did some decent growth in loans. Tepid loan growth has been weighing on regional banks and regional bank stocks for years, so it was especially good news that PNC didn’t fall short in new loans.
Additionally, PNC’s balance sheet continued to gain strength, which helps calm investors who were worried about another crisis in financials.
Regions Financial (RF) — another one of the big regional bank stocks, with a market cap of $14.76 billion — is up 10% for the year-to-date.
Unlike a number of other financials, Regions’ quarterly profit actually fell last quarter on one-time items. However, earnings per share beat the Street forecast, and for the full year, profit rose 10%.
Regions has been cutting costs in part by slashing its physical footprint and closing branches. It has also worked hard to sell hundreds of million in troubled mortgage loans. That helps clean up the books, but also leads to accounting charges. Also helping the stock are rising revenue, a strong capital position (which got even stronger in the most recent quarter), and rising net interest income.
With a market cap of $5.9 billion, Signature Bank (SBNY) isn’t the biggest of the regional banks stocks — but it is by far one of the best performers. Shares are up an electric 16% so far this year.
That can’t possibly last. On an annualized basis, that would have SBNY stock more than tripling in 2014.
But it’s a heck of a start — especially for a midcap stock in the financials sector — and earnings really did their part. Signature Bank’s fourth-quarter profits rose 28%, driven by strong growth in deposits and loans. That’s just not something we’re seeing these days with bank stocks, where growth has mostly been driven by costs cuts and the release of reserves.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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