In this article, we will examine the 10 Best Local Banks based on the number of hedge funds holding them.
A report by PwC predicts a revival in the US banking industry due to a pro-business policy expected from the Republican government. Key drivers for growth will be an increase in the demand for loans, steady securities business, and a lower benchmark rate. The estimated growth in net income from the overall banking sector is around 5.7%.
Deloitte predicts better economic growth in the US compared to 2024. Technology adoption can be a key driver for boosting output through efficiency in labor productivity. The CPI should also hover closer to the 2% market, prompting the central bank to lower interest rates. While lower lending costs may boost loan demand, a sticky deposit rate can hurt interest margins for banks. Deposit costs are expected to be at an elevated level of 2.03%, far above the 5-year average of 0.9%. This may create a pricing war between banks to procure more low-cost funds.
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In 2024, the fee-based income for banks was driven by capital market activities. The trend is expected to continue as asset prices increase. Non-interest income as a percentage of average assets should reach a level of 1.5%, a figure that has not been breached in the last five years. The expense ratio for banks increased by 200 bps in 2024 to reach 60%. The ratio should hover around this level in the next few years. Credit quality may suffer marginally due to a growing loan book with delinquency rates expected to rise for credit card, auto, and commercial real estate loans. Larger banks with a diversified business are expected to perform better but regional banks have been strategically shuffling their book to obtain a more favorable product mix.
Regional Bank ETFs have generated returns of 5.82%, 11.25,% and 25.33% for 1-month, 6-month and 1-year tenors. The underlying banks have demonstrated resilience in a challenging business environment without affecting their capital adequacy and credit quality. Given this, we will take a look at some of the best bank stocks according to analysts.
A series of ATMs in a row, symbolizing the company’s 24/7 banking services.
Our Methodology:
For this article, we scanned through various credible sources and identified their consensus picks of local bank stocks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Western Alliance Bancorporation (NYSE:WAL)
Number of Hedge Fund Investors: 35
Western Alliance Bancorporation (NYSE:WAL) operates through Commercial and Consumer segments and provides banking products and related services primarily in Arizona, California, and Nevada. Analysts at RBC Capital have lowered the price target of WAL from $109 to $105 but keep an Outperform rating for the stock. The ratings did not factor in the solid Q4 results delivered by WAL.
The Q4 EPS was $1.95 exceeding analyst’s expectation of $1.92. Western Alliance Bancorporation (NYSE:WAL)’s total revenue and revenue net of interest expectation also provided a positive surprise. The key focus of the bank has been to build its deposit base and improve liquidity, keeping the loan-to-deposit ratio around the 80s. Net interest income and non-interest income are expected to rise by 6-8% next year with Western Alliance Bancorporation (NYSE:WAL) looking to become a Category 4 bank. With a trailing 12-month EPS of $7.09, the current reflects a valuation of 12.6x, making it a reasonably priced stock.
9. Webster Financial Corporation (NYSE:WBS)
Number of Hedge Fund Investors: 37
Webster Financial Corporation (NYSE:WBS) provides a range of financial products and services to individuals, families, and businesses in the United States through its three segments namely Commercial Banking, HSA Bank, and Consumer Banking. The HAS segment offers health savings accounts, health reimbursement arrangements, flexible spending accounts, and commuter benefit services.
Webster Financial Corporation (NYSE:WBS) had a strong Q4, with total revenue and net interest income increasing 4.1% and 6.6% y-o-y, respectively. It has managed to reduce costs, achieving an efficiency ratio of 44.8%, compared to 43.04% a year ago. The loans and deposits book has been growing marginally but the allowance for bad loans has increased too, comprising 1.31% of total loans compared to 1.25% in Q4-23. Tier 1 and Total Capital ratios have improved from 11.62% and 13.72% to 12.01% and 14.20%, respectively. Webster Financial Corporation (NYSE:WBS) has solidified its balance sheet and has been growing steadily but it could continue to face pressure in maintaining the credit quality of its loan book.
8. KeyCorp (NYSE:KEY)
Number of Hedge Fund Investors: 41
KeyCorp (NYSE:KEY), through its two segments, Consumer Bank and Commercial Bank offers retail and commercial banking products and services in the US. In the latest development, KEY opened a new branch in New Port Chester. It has also financed a couple of affordable housing projects in Ohio.
KeyCorp (NYSE:KEY) reported an EPS loss of $0.28 in Q4 but has an adjusted EPS of $0.38. It is one of the fastest-growing local banks with a y-o-y revenue growth of 16%. The outlook for 2025 looks extremely positive with a projected increase in net interest income by 20% while the expenses are set to rise by 3-5%. The high-growth rate in 2024 did not deteriorate the credit quality with net charge-offs lower by $40 million compared to the previous quarter. With a strong capital base, KeyCorp (NYSE:KEY) expects commercial loan disbursement to rise by 2-4% in 2025, with further investments in wealth management, investment banking, and technology.
7. First Horizon Corporation (NYSE:FHN)
Number of Hedge Fund Investors: 44
First Horizon Corporation (NYSE:FHN) is headquartered in Tennessee and offers various financial services through its Regional Banking and Specialty Banking segments. The stock price is up 47% in the last year due to strong financial performance and a consistent rise in price targets by analysts. In its latest assessment, Wells Fargo revised the target for FHN from $21 to $22.
The full-year results have been a mixed bag with EPS missing the analysts’ expectation by 6.7%. Even as the revenue grew by 1.9%, the net interest margin dropped from 3.42% to 3.35%. The profit margin was down from 29% to 24% as operational costs of First Horizon Corporation (NYSE:FHN) increased. On the brighter side, the revenue guidance estimates an average growth of 7.2% in the next three years compared to 7% for the industry. As a strategic move, FHN is restructuring its securities portfolio which should provide room for further margin expansion. First Horizon Corporation (NYSE:FHN) also offers a reasonable forward dividend yield of 2.8%.
6. Truist Financial Corporation (NYSE:TFC)
Number of Hedge Fund Investors: 45
Truist Financial Corporation (NYSE:TFC) provides banking and trust services in the Southeastern and Mid-Atlantic United States through its three segments: Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings. It is another script offering a generous forward dividend yield of 4.62%.
Truist Financial Corporation (NYSE:TFC) has been successful in leveraging its digital channel by achieving a 7% y-o-y growth in its mobile users. It also managed to open 730,000 new digital loan and deposit accounts in 2024. The investment banking division has been the best performer, achieving a 46% growth in trading revenue. In its latest earnings call, the CFO estimates that the net interest margin should increase marginally accompanied by a modest growth in its loan and deposit book. Truist Financial Corporation (NYSE:TFC) is adequately capitalized with a CET1 of 11.5% and targets a capitalization level of around 10% in the near future. There is also an impetus provided to generate fee-based revenue in order to counter any headwinds from any unfavorable interest rate movement.
5. Comerica Incorporated (NYSE:CMA)
Number of Hedge Fund Investors: 46
Comerica Incorporated (NYSE:CMA) offers financial products and services to commercial and retail clients. CMA also manages a securities portfolio through its Finance segment. The stock has rallied 27% in the past six months but the forward dividend yield remains appealing at 4.28%. Recently it received a couple of price downgrades from analysts at Baird and JP Morgan amidst declining loan and deposit balances.
While the growth in the balance sheet has been limited for fiscal 2024, Comerica Incorporated (NYSE:CMA) has been able to build a strong balance sheet, increasing its CET1 ratio by 80 bps. A lower charge-off demonstrated a strong underwriting capability. The efficiency ratio in the 60s continues to be a weakness as the management targets a ratio of around 50%. The Commercial Real Estate loan is expected to underperform in 2025 but new opportunities have cropped up in its capital market business. Not only did the securities portfolio offer a super yield but Comerica Incorporated (NYSE:CMA) also managed to execute its first M&A deal as an advisor.
4. Citizens Financial Group Inc (NYSE:CFG)
Number of Hedge Fund Investors: 46
Citizens Financial Group Inc (NYSE:CFG), through its Consumer and Commercial banking segments, offers banking products and services to individuals, small businesses, middle-market companies, corporations, and institutions in the US. Analysts at Stephens & Co. maintain an Overweight rating for the stock with the price target stable at $53. CFG is looking to bolster its wealth management business in southern Florida by bringing in industry veterans who have a combined experience of more than six decades.
The performance of Citizens Financial Group Inc (NYSE:CFG) has been steady, with revenue in line with Street expectations. The loan demand continued to face pressure but there has been an expansion of its Net Interest Margin to the tune of 10 basis points. Private banking and fee-based business will be the focal point of the company as it looks to reduce its non-core loans. Credit costs are also expected to decrease with better underwriting standards. CFG offers a 3.5% forward dividend yield and a decent capital return on its stock based on analyst estimates.
3. First Citizens BancShares Inc (NASDAQ:FCNCA)
Number of Hedge Fund Investors: 46
First Citizens BancShares Inc (NASDAQ:FCNCA) is based out of North Carolina and provides retail and commercial banking services to individuals, businesses, and professionals. The stock price is up 49.40% in the past year and it continues to receive upward price targets from analysts. Truist Securities revised the price target from $2,303 to $2,384 with a Hold rating.
The favorable price revisions come on the back of a strong 2024 fiscal with revenues up by 23% and EPS beating analyst estimates by 6.4%. First Citizens BancShares Inc (NASDAQ:FCNCA) showed operational resilience amidst industrial headwinds with NIM at 3.54%, lower than 3.92% in 2023. Non-interest income received a boost from a favorable market price of securities, a gain on the sale of leasing equipment, and a gain on the sale of mortgage loans. The proportion of non-performing loans also increased slightly from 0.73% to 0.84%. It is also on the verge of transitioning to a Category 3 bank. The stock is priced at 11.71x its trailing 12-month EPS.
2. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Investors: 46
U.S. Bancorp (NYSE:USB) is headquartered in Minnesota offering financial services to individuals, businesses, institutional organizations, governmental entities, and other financial institutions in the US. USB has announced a new CEO in Gunjan Kedia and El-Yafi as the new lead for its Global Transaction Services business.
U.S. Bancorp (NYSE:USB) reported Q4 EPS of $1.07, beating analysts’ expectations of $1.05 even though the revenue fell short of expectations. Analysts at Goldman Sachs expect net interest income to grow by 3% primarily due to strong loan growth in the second half of 2025. USB generated an 18.3% return on tangible equity amidst a lower efficiency ratio of 60%. The adjusted CET1 ratio is 8.6% which is above the current regulatory requirement but it is below the 10% target for Category II banks. U.S. Bancorp (NYSE:USB) is expected to slow down on buybacks in a bid to improve its capital ratio and achieve the Category II target by 2027.
1. The PNC Financial Services Group Inc (NYSE:PNC)
Number of Hedge Fund Investors: 51
The PNC Financial Services Group Inc (NYSE:PNC) is a diversified financial services company headquartered in Pennsylvania that operates through three segments: Retail Banking, Corporate & Institutional Banking, and Asset Management Group.
The PNC Financial Services Group Inc (NYSE:PNC) delivered a strong 2024 fiscal with record revenue driven by 6% growth in its fee income business. Non-interest income offset the loss in earnings on account of 26 bps contraction in yields for its loan book. Fee income is poised to grow at 5% in 2025 with a strong demand for card and treasury business. The loan book may face challenges primarily due to stress in the mortgage lending business. With a CET1 ratio of 10.5%, The PNC Financial Services Group Inc (NYSE:PNC) will continue to buy back shares and look to improve the return to its shareholders. While the net interest margin would continue to face pressure, the growth in consumer demand deposits should reduce the cost of funds in the next fiscal.
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