Regional banks still have room to run and thrive even as it is “easy to overstate the advantage” for big banks, says Truist Securities in its latest note, highlighting three key paths for regional banks to succeed.
What Happened: Big banks have clear economies of scale, and they have been re-rated relative to small banks with the top five U.S. banks holding about 47% market share for a decade. According to the Truist Securities note, dated Jan. 6, the big banks are in a better position, but at the same time, individual regionals can position themselves to thrive.
Truist initiated coverage on 14 regional financial companies outlining three key strategies relating to pace, magnitude, and quality for the regional banks to remain competitive.
- Differentiated Growth: Focus on unique and sustainable growth opportunities via differentiated customer base, a different form of fee Income and a niche business with competitive moat.
- Disciplined Capital Allocation: Efficiently deploy capital to support growth and enhance shareholder value.
- Navigating the Evolving Landscape: Adapt to changing market conditions, including interest rates, yield curve shifts, loan and deposit growth, and commercial real estate market dynamics.”
| Regional Banks | Rating | Price Target |
| Fifth Third Bancorp FITB | Buy | $51 |
| Huntington Bancshares HBAN | Buy | $19 |
| M&T Bank MTB | Buy | $233 |
| Wintrust Financial WTFC | Buy | $151 |
| Citizens Financial CFG | Hold | $49 |
| Comerica Inc CMA | Hold | $65 |
| First Citizens BancShares FCNCA | Hold | $2,303 |
| KeyCorp KEY | Hold | $19 |
| Regions Financial RF | Hold | $25 |
| Cards | Rating | Price Target |
| Ally Financial ALLY | Buy | $42 |
| American Express AXP | Buy | $350 |
| Capital One Financial COF | Buy | $229 |
| Discover Financial DFS | Buy | $233 |
| Synchrony Financial SYF | Hold | $72 |
Why It Matters: The three listed key paths for regional banks and card companies to thrive can be differentiated and linked to the stocks as mentioned by Truist in their research note.
Differentiated Growth Stories
- Differentiated Customer Base: American Express Co has an exclusive high-end customer base, which would require an investment of over $100 billion to replicate, according to Truist. On the other hand, Fifth Third Bancorp has a unique ability to organically build a strong deposit market share.
- Differentiated Form of Fee Income: Capital One Financial Corp has seen an expansion of network revenues following the acquisition of Discover. While, KeyCorp’s leading regional investment banking franchise will be favored by given the potential for increased deal activity driven by the Federal Reserve’s interest rate cuts and anticipated political changes.
- Niche Business with Competitive Moat: Wintrust Financial Corp secures a dominant position in the highly profitable insurance premium finance market. Whereas, Huntington Bancshares Inc‘s differentiated approach, including its expansion into new lending areas, will support its continued strong performance in loan, deposit, and fee growth across high-quality markets.
Disciplined Capital Deployment
- Another way in which the regional banks could thrive includes a disciplined capital deployment which typically follows organic growth first, followed by dividends and buybacks, and potentially mergers and acquisitions. However, the key lies not in the order itself, but in the flexibility and agility with which banks can adjust their capital allocation strategy in response to evolving company, industry, and macroeconomic conditions.
- Truist believes some banks are attractively valued for share repurchases. M&T Bank Corp‘s CFO in a recent conference hinted at higher buybacks in 2025.
Navigating The Evolving Landscape
- According to Truist, it’s not unusual for multiple challenges to arise simultaneously. The current environment has witnessed sluggish loan and deposit growth amidst rapid interest rate hikes. However, it is anticipated that at least some of these headwinds will begin to abate in the coming year, leading to a more favorable environment for the banking sector
- CRE Valuation: Banks with significant commercial real estate exposure in high-growth, high-income markets, such as Fifth Third and Huntington, are well-positioned for future CRE origination opportunities. M&T and Citizens Financial Group Inc. will also benefit from an eventual improvement in market conditions.
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