Regional Banks Surge: Earnings Propel Rebound From Key Support Level At 200-Day Average

Regional bank stocks, as represented by the SPDR S&P Regional Banking ETF KRE, have experienced a noticeable rebound after recently hitting the 200-day moving average support.

This positive movement follows a series of strong earnings aQ1 2024 reports from sector players.

Despite this uptick, the gauge still remains nearly 20% below its pre-March 2023 crisis level, a stark reminder of last year’s turmoil in the regional banking sector.

Chart: Regional Banks Rebound Off 200-Day Support Line

Analyst Insights And Key Stock Valuation

“Regional banks with strong deposit franchises are well-positioned in a structurally higher rate environment,” said Ebrahim H. Poonawala, a noted analyst from Bank of America. This sentiment reflects a broader industry expectation that Net Interest Income (NII) could recover this year, with credit losses remaining manageable.

This forecast suggests a shifting investor attitude towards a “higher for longer” economic scenario.

Stock valuations among regional players are trading between hopes for a soft economic landing and pressures from sustained higher rates.

Notably, large-cap regional banks are trading at a price-to-earnings (P/E) ratio of 9x for 2025, compared to a 5-year pre-pandemic median of 13.1x.

This represents a 47% discount relative to the S&P 500, which is a slight improvement from the previous 36% discount.

Standout Regional Bank Performers: Metropolitan Bank And Huntington Bancshares

Metropolitan Bank Holding Corp. MCB stands out as a top performer among regional banks, with shares rallying 14% over the last month.

The bank reported a first-quarter 2024 core EPS of $1.51, surpassing expectations due to robust revenue and lower-than-expected provision expenses.

JPMorgan Chase & Co’s analyst Alex Lau believes that this success can be attributed to its effective handling of deposit gathering and concerns over New York City commercial real estate loans, which makes up about 70% of its total loan portfolio, with an additional 10% in multifamily loans. Given the current investor apprehensions, particularly regarding office spaces, a weakening in the commercial real estate market could potentially raise credit concerns within the bank’s portfolio.

For Metropolitan Bank Holding, the financial outlook for 2024 includes a projected loan growth between $600 million and $800 million, with the net interest margin (NIM) expected to be between 3.45% and 3.50% in the fourth quarter.

Operating expenses for the year are anticipated to range from $160 million to $163 million, while fee income is estimated to fall between $19 million and $21 million.

The provision for credit losses could range from $6 million to $8 million, with the potential to increase depending on the year’s credit conditions.

Additionally, Lau has revised core earnings per share (EPS) estimates for Metropolitan Bank Holding, increasing the 2024 estimate from $5.77 to $6.12 and the 2025 estimate from $7.57 to $7.71.

JPMorgan Chase & Co. currently holds an Overweight rating on MCB, with a $55 price target, implying a 30% potential upside from current levels.

See Also: Evaluating Metropolitan Bank Holding: Insights From 4 Financial Analysts

Huntington Bancshares HBAN has also seen a positive performance, increasing by over 6% in 2024, marking one the strongest returns in relation to the industry this year.

As recently stated by Goldman Sachs, the bank’s first-quarter results were solid, with core pre-provision net revenue (PPNR) exceeding expectations driven by higher net interest income (NII) and reduced expenses.

Reported earnings per share were 0.26, beating the expected 0.24, and revenue came in at $1.77 billion, surpassing the forecasted $1.74 billion.

“We still see several reasons to remain positive on the story as HBAN is one of the biggest beneficiaries of fixed asset repricing across the regionals,” analyst Ryan M. Nash, CFA, wrote.

Additionally, Huntington Bancshares’s credit metrics continue to outperform regional averages, with net charge-offs (NCOs) at approximately 30 basis points and non-performing loans (NPLs) slightly up by 3 basis points quarter-over-quarter to 58 basis points.

Huntington Bancshares is also in a “strong capital position” and well prepared to either pursue growth opportunities or stock buybacks ahead of its competitors.

Now Read: S&P 500 Trades At Two-Month Low: Where Is The Next Support?

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