According to Citi analyst Ben Gerlinger, Western Alliance Bancorp, First Horizon Corp., Popular Inc., and Bank OZK are among the top-performing banks in a list that covers 18 institutions. Despite a challenging year, regional banks continue to be "very attractive" investments for 2024 and the first half of 2025.
Gerlinger expects these four banks, namely Western Alliance (WAL), First Horizon (FHN), Popular Inc. (BPOP), and Bank OZK (OZK), to exhibit promising performance during the fourth-quarter earnings season. First Horizon will announce its results on January 18, followed by Popular on January 23. Western Alliance and Bank OZK's earnings reports are scheduled for January 24.
Notably, all four banks currently enjoy robust capital levels, providing them with the flexibility to repurchase shares, pursue growth opportunities, or even do both simultaneously.
While the KBW Nasdaq Bank Index (BKX) has seen a 15% increase in the past month, it remains down by 5% for the year. Similarly, the SPDR S&P Regional Banking ETF (KRE) experienced a 16.5% surge in the last month but is still down by 10.3% for the year.
The banking sector's stock performance was influenced by the collapse of three former S&P 500 components from the banking sector this year: Silicon Valley Bank, Signature Bank, and First Republic Bank.
The Impact of Rapid Interest-Rate Hikes on Banks
Recent interest-rate hikes by the Federal Reserve have had a significant impact on banks' net interest income. Net interest income refers to the profit banks generate from loan payments, minus the interest they pay out for deposits.
Changes in Ownership and Acquisition
During this time, several significant changes and acquisitions have taken place in the banking sector. Silicon Valley Bank was acquired by First Citizens Bancshares Inc., while JPMorgan Chase & Co. bought First Republic and New York Community Bancorp acquired Signature Bank.
Downgrade of New York Community Bancorp
In addition to these changes, KBW downgraded New York Community Bancorp to "market perform" from "outperform" and reduced its target price from $14 to $12. This decision was made by KBW analyst Christopher McGratty, who noted that the stock had seen a 70% increase since its deal in March to acquire Signature Bank.
Complications in the Banking Sector
Although indicators in the banking sector have recently shown a positive trend, McGratty highlighted that the narrative has become more complex with credit and expenses now coming into play. There are concerns that the economy may be heading towards a recession, particularly if more borrowers default on their loans.
New York Community Bancorp's Performance
Despite these concerns, New York Community Bancorp has managed to avoid this year's selloff on recession concerns and other issues, largely due to the boost it received from acquiring Signature Bank. However, KBW predicts that the bank will perform similarly to its peers moving forward.
Stock Performance of New York Community Bancorp
In 2023, New York Community Bancorp's stock has witnessed a 22% rise, slightly lower than the 24% increase seen in the S&P 500.
Investors and stakeholders will be closely monitoring New York Community Bancorp's fourth-quarter results, which are scheduled to be reported on Jan. 31.
Also read: Are bank stocks poised for a rebound? Three picks for 2024.