If
you’re looking for an industry that is set to thrive following the pandemic, regional banks are a great area of the market to check out. Companies operating in the sector tend to be more sensitive to economic activity and upticks in loan activity, which both should be bouncing back in the coming months. Keep in mind that most of the emergency stimulus measures enacted by the U.S. Government and the Federal Reserve are ending, so many consumers and businesses will look to regional banks for support. There have also been some indications from the Fed that interest rate hikes are coming as soon as next year, which would certainly be a huge benefit to these companies.
The sector has already delivered strong returns this year, as the KBW Nasdaq Bank Index (BKX), which tracks the performance of 24 banking stocks representing large U.S. national money centers,
regional banks, and thrift institutions, is up over 37% year-to-date versus 16.21% for the S&P 500. It’s also been interesting to see how regional bank stocks have held up during the recent market selloff, as many of them have shown relative strength and could be strong buys once the market turns. That’s why we’ve put together the following list of 3 standout regional bank stocks to buy now. Let’s take a deeper look below.
This regional bank is a buy thanks to its position as one of the top
financial services companies in the innovation space. SVB Financial Group offers commercial and private banking, asset management, and other investment services through its primary subsidiary, Silicon Valley Bank. The company also operates as a commercial bank with a niche focus on technology, life sciences, and PE/VC firms, which means that it is one of the key players providing capital to tech start-ups. There aren’t many banks out there that offer this type of exposure, and according to the company, 63% of U.S. venture capital-backed companies that went public in H1 2021 were SVB clients.
SVB Financial Group operates through 30 regional offices in the U.S. and has a presence in the UK, Canada, Israel, Germany, Denmark, India, and China, and it's worth noting that there are plenty of opportunities for the company to expand internationally. SVB reported a record net revenue of $3.97 billion in 2020, up 20.4% year-over-year, even with the impact of historically low interest rates, which is quite impressive. The company also recently completed the acquisition of Boston Private Financial Holdings for $1.2 billion which should be viewed as a positive, as it strengthens the company’s private banking business and could lead to nice cross-selling opportunities going forward.
Next up is Signature Bank, a
regional bank headquartered in New York that operates through two segments, commercial banking, and specialty finance. Signature’s commercial banking segment involves commercial real estate lending, commercial and industrial lending, fund banking, venture banking, and more, while the specialty finance segment involves financing and leasing products like equipment, transportation, commercial marine, municipal, and national franchise financing. It’s a high-quality bank stock for several reasons, particularly since it is hitting record highs in a very weak period for the market.
First, the company stands out because it is seeing record balance sheet growth at this time and adding more loans to its balance sheet than most competitors. In Q2, Signature Bank reported record net income, record total deposits, and record loan growth, so it's clear that business is booming. Signature Bank also has an interesting business strategy that focuses on enhancing the client experience by allowing its customers to interact directly with bankers and senior-level management. Finally, the company has a proprietary, blockchain digital payments platform called Signet that could lead to an expanded digital assets business in the future, making this a top pick in the regional banking industry.
SPDR S&P Regional Banking ETF (NYSEARCA: KRE)
While the two stocks mentioned earlier in this article both offer something unique, sometimes it's best to simply buy a sector ETF to add exposure to a certain area of the market. That’s why the SPDR S&P Regional Banking ETF makes our list, as it’s a simple way to add 133 of the top regional banks to your portfolio and take advantage of a 2.15% dividend yield.
This ETF has rallied over 34% year-to-date and could be in for a strong finish to the year if we receive more encouraging news about the economy. Some of the top holdings in the SPDR S&P 500 Regional Banking ETF include Sterling Bancorp, Western Alliance Bancorp, Citizens Financial Group, and the intriguing digital currency play Silvergate Capital.
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