3 Stocks To Own As Regional Banks Rebound

In just the first few days of trading in 2021, regional bank stocks are soaring. The SPDR S&P Regional Banking ETF (KRE) is up more than 12%, while the  S&P 500 is trading just 1.29% higher.  

The banking industry saw more than its fair share of challenges in 2020, ranging from the closure of branches due to the coronavirus pandemic, to the increased competition from non-bank fintechs. The Deloitte Center for Financial Services is estimating that the U.S. banking industry may have to provision for a total of $318 billion in net loan losses from 2020 to 2022, which would represent 3.2% of loans.

HIBS – Regional bank stocks Hingham Institution for Savings (HIFS), Webster Financial (WBS), and German American Bancorp (GABC) don’t get much attention, but they should. Here’s why.

Last month, Fitch Ratings revised its Sector Outlook for U.S. banks from Negative to Stable for 2021, although it also pointed out that approximately 60% of U.S. bank ratings were carrying a Negative Outlook. While the ratings agency acknowledged that “bank fundamentals have largely held up better than our baseline and downside scenarios, suggesting widespread downgrades are less likely,” it also warned a continuation of the historically low interest rate environment and declining loan demand, coupled with the uncertainty of credit quality when the federal stimulus is eventually tapered, could pose new problems for the industry.

Nonetheless, investors have not lost their appetite for bank stocks. And while the largest banks inevitably gain the lion’s share of attention, a trio of regional banks that rarely gain the national spotlight – Hingham Institution for Savings (HIFS), Webster Financial Corp. (WBS - Get Rating), and German American Bancorp (GABC - Get Rating) – continue to offer consistently solid performances in our proprietary POWR Ratings and are likely to see continued gains into 2021.

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