Regional banks don’t have the hundreds of billions in dollars in assets majors like Bank of America (BAC) and Wells Fargo (WFC) do. But regional banks have one great asset the majors definitely do not – a foundation in traditional banking.
The majors took big hits in the Great Recession of 2007 investing in risky securities and credit default swaps, and they still struggle to completely divest from these investments. Regionals have largely stuck to the established banking practice of lending – personal loans; housing loans – and while they certainly suffered when the housing bubble burst as well, they now stand to benefit greatly from the rising interest and mortgage rates. And as that “spread” between interest rates and payables on deposits increases, regionals are looking like a more and more attractive investment.
The Case-Shiller Index, which looks at home prices in 20 major metropolitan markets, is up 2.32 percent on the month, and indicates that home prices are now at their highest level since 2009. Of the 20 cities in the index, San Francisco was the big gainer. Fueled by the blossoming tech sector, housing in San Francisco went up 24 percent over a year. 19 of the cities experienced at least some gain, with Detroit merely remaining flat in prices.
And as prices go up, so does the spread for regionals. The SPDR S&P Regional Banking ETF (KRE), which uses the S&P Regional Banks Select Industry Index as its benchmark, is up 1.83 percent to $33.97 a share, putting it just short of its 52 week high of $34.03.
We decided to spotlight a few specific emerging regionals and delve further into what’s fueling their growth.
LARGE CAP REGIONAL BANKS
Sun Trust Banks Inc. (STI) The Atlanta-headquartered, southern bank chain SunTrust weathered tough times during the housing crisis, even divesting from historic business partner Coca-Cola in 2009 to raise capital. But SunTrust, who currently operate over over 1600 throughout the entire South, are seeing big gains as the housing market rebounds, especially in their home of Atlanta, which is up 3.84 percent on the month.
SunTrust is up 1.08 percent to hit 31.70, and has jumped 37.71 percent from a year ago.
Regions Financial (RF) This Birmingham, A: chain with over 1700 locations throughout the South and Midwest looks sharp. It currently sits at its 52 week high of $9.71 a share. It’s up a whopping 52.6 percent from a year ago, and still looks strong with increasing profits and a good cash flow.
MID AND SMALL CAP BANKS
Home BancShares (HOMB) This bank holding company owns Arkansas and Florida chain Centennial, and just merged with another southern chain (Liberty) to expand out to 151 locations and $7.1 billion in total assets. Home BancShares is up 2.77 percent on the merger news to hit $26.32 a share. They’re up a healthy 38.22 percent since January.
First Republic Bank (FRC) San Francisco is leading the country in housing sales, and its no surprise one of their major mortgage lenders is feeling it. First Republic has 59 locations throughout California, with the majority in North California. First Republic is up 1.42 percent to $38.44 a share amidst heavy trading, and is up 15.1 percent on the year.
Center Bancorp, Inc. (CNBC) This New Jersey-based regional is up 1.72 percent to close at $12.98. In April Forbes named Center Bancorp a Top Dividend Stock, noting their attractive 2.56 percent dividend yield, and the fact that it was a high “insider buy,” meaning people within the company (who presumably know the most about it) believed in it enough to invest heavily in it. Bancorp is up 13.73 percent from its price one year ago.
Capital Bank Financial (CBF) This bank invests heavily in commercial and has a very attractive spread of 4.4 percent. Incorporated in Delaware and with locations in Florida, North and South Carolina, and Tennessee, their stock jumped 3.81 percent to close at $19.08 a share.
Fifth Third Bancorp (FITB) UBS Analyst Stephen Scinicariello is high on this Cincinnati, Ohio bank because of their healthy mortgage portfolio. They’re up .98 percent to hit $18.10 a share, and are up 18.9 percent on the year.
Wilshire Bancorp Inc. (WIBC) This Los Angeles-based bank holding company (main subsidiary: Wilshire State bank) has 24 locations throughout Southern California. This $476.98 million market cap bank might still be undervalued, with a P/E ratio of 5.48. Wilshire is only up .15 percent to close out at $6.69 a share, though they shot up 27.03 percent on the year.