In this piece, we will take a look at the 12 best local bank stocks to invest in now.
Banking stocks have been quite infamous lately, particularly after the 2023 mini banking crisis in the U.S. Since interest rates soared to record highs back then, economists and analysts worried whether existing debt that was valued at lower rates could rapidly lose value and lead to to macroeconomic instability. These worries came to a head in 2023 when a string of large bank failures shook Wall Street and led to jitters about a spillover to the broader banking industry.
This strain on the financial sector has persisted in 2024 despite a much calmer banking industry since last year. Even though artificial intelligence stocks have injected fresh life into Wall Street, some sectors, such as commercial real estate have struggled. Higher rates coupled with lower occupancy rates have left commercial real estate vulnerable, and the link between this sector and the banking industry came into the limelight in May 2024.
This took place in the form of one of America’s largest banks, Bank of America Corporation (NYSE:BAC) buying a real estate loan portfolio worth billions of dollars. Local banks in the US are typically called regional banks and they are generally limited to operations across groups of states. One such bank is the Seattle, Washington based WaFd, Inc (NASDAQ:WAFD), and it sold its commercial real estate portfolio worth $2.9 billion in order to improve its balance sheet health. WaFd, Inc (NASDAQ:WAFD) is a sizeable local bank in the US, and it has more than a hundred branches in Washington and Oregon alone.
Another consequence of last year’s banking crisis and high interest rates has been sharper attention by regulators on bank balance sheets. Its business model means a bank must hold some money at hand to meet sudden customer withdrawals, and new rules increase the reserves banks must have at hand to meet these requirements. Higher reserves mean fewer investments that can lead to juicy dividends, yet despite this, banking stocks have soared. This is also unsurprising, as higher rates mean that banks make more money. We’ve covered how high rates mean high bank profits in detail as part of our coverage of 10 Best Financial Dividend Stocks Insiders are Buying in 2024 so you can read it for more details.
So, how have local bank stocks performed recently? Well, taking a look at indexes can help. The Dow Jones U.S. Select Regional Banks Index and the S&P Regional Banks Select Industry Index are two such local bank stock indexes. Both of these are up over the past twelve months by having gained 32.8% and 29.1%, respectively. This performance trend has sustained in 2024 for the Dow Jones U.S. Select Regional Banks Index since it is up by 2.25%. However, with the year’s first half nearing its end, the S&P Regional Banks Select Industry Index has lost 3% as it joins the KBW Regional Banking Index’s 7.5% year to date losses in 2024, showing that bank stocks often face headwinds that can knock the wind out of a favorable impact from high interest rates.
Local bank stocks have faced their fair share of struggles in 2024 due to the lingering aftereffects of the 2023 bank runs and collapses. Another regional lender, the New York based New York Community Bancorp, Inc. (NYSE:NYCB), underwent quite a bit of turmoil in the wake of its first quarter results that sent shares tumbling by more than 40% in the days following the release. NYCB’s stock collapse was evidence of Wall Street’s jittery feelings for local banks, particularly due to their close relationship with commercial real estate.
Data shows that after Silicon Valley Bank’s 2023 collapse, commercial real estate loans in the US have dropped by $100 billion. Commercial real estate loan growth among US banks also stood in the red during February 2024, with the spread between the 30 day implied volatility between the Financial Select Sector SPDR Fund XLF and the SPDR S&P Regional Banking ETF KRE also at a multi year high. Some of the reasons behind this rather sober environment surrounding local bank stocks are, ironically, interest rates since even though banks earn more through higher rates, they have to make higher payouts as well which means they can divert less money to fund growth.
With these details in mind, let’s take a look at some top local bank stocks in the US.
A banker closely examining a document while seated at his desk.
Our Methodology
To make our list of the best local bank stocks, we ranked the forty most valuable regional banks headquartered in the US by the number of hedge funds that had bought their shares in Q1 2024. For some more US bank stocks, you can check out 25 Largest Banks in the US by Asset Size and 25 Largest Banks in the US by Total Deposits.
Moreover, for each of these stocks, we looked at how many hedge funds from our database held shares according to the last round of 13F filings. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this underlooked indicator.
12. M&T Bank Corporation (NYSE:MTB)
Number of Hedge Fund Investors In Q4 2023: 32
M&T Bank Corporation (NYSE:MTB) is a Buffalo, New York based regional bank. It joined the ongoing artificial wave in May 2024 after announcing a partnership with a financial technology firm to use AI for monitoring consumer and portfolio credit health.
Insider Monkey’s data shows that 32 hedge funds had held a stake in M&T Bank Corporation (NYSE:MTB) during this year’s first quarter. One of the largest stakes in the bank was held by Paul Marshall and Ian Wace’s Marshall Wace LLP . It was worth $87 million and came via 639,872 shares.
11. Fifth Third Bancorp (NYSE:FITB)
Number of Hedge Fund Investors In Q4 2023: 34
Fifth Third Bancorp (NYSE:FITB) is an Ohio based financial services firm that caters to the needs of regular, businesses, government, and other customers. The average of 20 12 month share price targets for the bank is $40 and the shares are rated Buy on average.
At the March 2024 close, 34 hedge funds that were part of Insider Monkey’s database were Fifth Third Bancorp (NYSE:FITB)’s stakeholders. Brandon Haley’s Holocene Advisors owned the biggest stake that was worth $49.7 million.
10. Webster Financial Corporation (NYSE:WBS)
Number of Hedge Fund Investors In Q4 2023: 36
Webster Financial Corporation (NYSE:WBS) is one of the oldest local banks on our list since it was set up in 1935. It’s also one of the strongest rated local bank stocks on the list since the average rating of 15 analysts is Strong Buy. The average share price target is $56.73.
As of Q1 2024 end, 36 out of the 933 hedge funds profiled by Insider Monkey had held stakes in Webster Financial Corporation (NYSE:WBS). One of the hedge funds with a sizeable stake was Ric Dillion’s Diamond Hill Capital as it held $118 million worth of shares.
9. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Investors In Q4 2023: 36
U.S. Bancorp (NYSE:USB) is one of the biggest local banks in the US as it has an employee base of 70,000. The bank scored a win in May 2024 when J.D. Power rated it the best bank in California for the fourth consecutive year.
Insider Monkey compiled hedge fund data covering this year’s first quarter and found that 36 funds were U.S. Bancorp (NYSE:USB)’s stakeholders. Among these, the one with the biggest stake was Andreas Halvorsen’s Viking Global through its $414 million stake.
8. Citizens Financial Group, Inc. (NYSE:CFG)
Number of Hedge Fund Investors In Q4 2023: 37
Citizens Financial Group, Inc. (NYSE:CFG) is a Rhode Island based bank that offers loans, risk management, cards, and other banking products and services. A fresh report from Bloomberg suggests that the bank is interested in issuing special preferred shares that promise the same coupon until the shares are redeemed via a perpetual issue.
By the end of this year’s March quarter, out of the 933 hedge funds covered by Insider Monkey’s research, 36 had bought stakes in Citizens Financial Group, Inc. (NYSE:CFG). Cliff Asness’ AQR Capital Management owned the largest stake that was worth $124 million.
7. Western Alliance Bancorporation (NYSE:WAL)
Number of Hedge Fund Investors In Q4 2023: 39
Western Alliance Bancorporation (NYSE:WAL) is a mid sized local bank with a presence in Nevada, California, and Arizona. Amid a tight operating environment for local banks, its recent financial performance is mixed. This is because Western Alliance Bancorporation (NYSE:WAL) has beaten analyst EPS estimates in just two of its four latest quarters.
Insider Monkey’s hedge fund data shows that 39 had held a stake in Western Alliance Bancorporation (NYSE:WAL) as of Q1 2024 end. Out of these, Ken Griffin’s Citadel Investment Group holds a sizeable stake that is worth $167 million.
6. Comerica Incorporated (NYSE:CMA)
Number of Hedge Fund Investors In Q4 2023: 45
Comerica Incorporated (NYSE:CMA) is a Texas based local US bank that provides retail, commercial, and wealth management services. It won a laurel for its strong local ties and presence in May 2024 when a non profit named it to its list of the top 50 most community minded companies in America.
As of March 2023, 45 hedge funds among the 933 that were part of Insider Monkey’s database were Comerica Incorporated (NYSE:CMA) ‘s stakeholders. Among these, the one with the biggest stake was Ken Griffin’s Citadel Investment Group as it held $94.9 million worth of shares.