Five Regional Bank Stocks to Buy Amid Regulatory Rollback

At Insider Monkey, we track over 650 hedge funds and analyze their quarterly 13F filings and compile data to see how many hedge funds are invested in thousands of companies at the end of a quarter. When it comes to bank stocks, we can see that hedge funds are bullish on them, not as much as they are bullish on technology, but major banks, such as Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC), which are also among the biggest commercial banks in New York City are always close to the top the most popular stocks list.

However, during 2017, major banks, like those listed above saw a decline in hedge fund sentiment. On the other hand, smaller and regional banks saw an inflow of capital from hedge funds, although they are still far from overtaking major banks. One of the reasons why hedge funds have been bullish on banks lately, is the prospect of fewer regulations, since President Donald Trump has promised to do a “big number” on the Dodd-Frank Act, a 2010 law that was set after the financial crisis of 2007-2008, which heavily regulated the way many financials institutions operate.

Recently, the US Senate passed a bipartisan bill that eased some regulations on banks. The bill would rewrite some parts of the Dodd-Frank Act and would adjust the size at which banks are subject to some regulatory scrutiny. Smaller banks would also be exempt from some requirements related to loans, mortgages and trading.The House of Representatives also passed its own version of the bill, which also involves deregulation and both houses have to agree and pass a final bill before it’s signed into law.

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Under the Senate bill, the threshold above which a bank is considered a systematically important financial institution to $250 billion in assets from $50 billion under the Dodd-Frank Act. One of the benefits from this increase, is that smaller banks won’t be subjected to annual stress tests, which they had to pass in order to pay dividends or buy back stock. The stress tests require banks to build a system that is very expensive and many smaller banks avoided mergers in order to not pass the $50 billion in assets mark.

In this way, the increase of hedge funds’ interest towards regional banks is understandable, so let’s take a closer look at the most popular regional banks, focusing on those that saw the largest increase in popularity during 2017. Looking at stocks that hedge funds are bullish on can provide a smaller investor with many interesting investment opportunities. At Insider Monkey, we have developed a strategy that focuses on best small-cap stocks from the equity portfolios of best-performing hedge funds and this approach has beaten the market by over 20 percentage points since 2014. We share the stock picks from our small-cap strategy in our quarterly newsletters, but we also have a monthly newsletter that focuses on activist funds.

In Comerica Incorporated (NYSE:CMA), there were 45 funds in our database holding shares at the end of 2017, up from 40 funds a quarter earlier and from 43 funds at the end of 2016. Comerica Incorporated (NYSE:CMA) is based in Dallas, Texas, and also has operations in Arizona, California, Florida, and Michigan. The company’s stock has advanced by over 40% in the last year and is one of the top performers among banking stocks. Nevertheless, with a forward earnings multiple of 15.70, Comerica Incorporated (NYSE:CMA) still looks attractive as it is trading lower than the industry average of 16.90. For the fourth quarter, Comerica Incorporated (NYSE:CMA) posted better-than-expected EPS and revenue of $1.28 and $830 million. In addition, the revenue increased by 15% on the year, which marked the second consecutive quarter of double-digit growth since 2014.

Regions Financial Corp (NYSE:RF) saw the number of hedge funds long its stock increase by 12 to 43 during the last three months of 2017, while at the end of 2016, there were 38 funds bullish on the company. At the beginning of the year, Regions Financial Corp (NYSE:RF) announced plans to boost its capex by 50% or $100 million to invest in facilities, technology, product innovation, and personalized service. The company will also raise its minimum hourly wage to $15 by the end of 2018.

Next in line is First Horizon National Corp (NYSE:FHN), in which there were 24 funds holding shares heading into 2018. The company saw the largest increase in popularity during 2017 and the second-largest during the fourth quarter, as the number of bullish investors went up by nine from the end of 2016 and by eight from the end of September. First Horizon National Corp (NYSE:FHN) is the parent company of First Tennessee Bank, which operates around 200 branches around Tennessee. Last year, First Horizon National Corp (NYSE:FHN) acquired Capital Bank Financial Corp in a stock-and-cash deal worth $2.20 billion. Earlier this year, the company has declared a dividend of $0.12 per share, up from the previous $0.09 and the board of directors has approved a $250 million buyback program that will expire in January 2020.

During the fourth quarter, the number of funds from our database long New York Community Bancorp, Inc. (NYSE:NYCB) went up by four to 21; at the end of 2016, there were 16 funds bullish on the company. New York Community Bancorp, Inc. (NYSE:NYCB) posted EPS of $0.26 for the fourth quarter, up from the consensus estimate of $0.17, but its net interest income slid by 14.1% on the year to $270.97 million and missed the expectations by $4.55 million. New York Community Bancorp, Inc. (NYSE:NYCB) is paying a dividend of $0.17 per share and its stock has a yield of 4.82%, the highest among the banks we are covering in this article.

Last but not least, in Associated Banc Corp (NYSE:ASB) the number of bullish investors went up by three over the quarter and by four over the year to 18 funds that disclosed long positions as of the end of September. With total assets of $30.48 million, Associated Banc Corp is the the smallest in this list. In February, Associated Banc Corp (NYSE:ASB), the second-largest bank in Wisconsin, declared a dividend of $0.15 per share, having increased it by 7%. For the fourth quarter, Associated Banc Corp (NYSE:ASB) posted EPS of $0.41, versus the consensus estimate of $0.38, while its revenue of $272 million, missed the estimates by $8.18 million.

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