U.S. regional banks have increased profits. Which ones do analysts advise investors to buy?

The eight largest regional banks in America, traded on the stock exchange, increased profits for the first quarter of this year by an average of about 22% year on year, according to a review of CreditSights. At the same time, the growth of some players reached 39-40% - in particular, Citizens Financial and Fifth Third Bancorp.

This profit growth was due to simultaneous expansion of net interest income - in the range of about 10-12%, double-digit growth of fee and commission income - in the range of 10-30%, as well as positive operating leverage. That is, the growth of operating income - interest and commission income was higher than the growth rate of operating expenses.

"Net interest income increased due to repricing of fixed assets after a period of sharp rate increases, favorable funding cost trends and an improved mix of earning assets amid accelerating lending primarily in the corporate segment," the survey said.

Fee and commission income was another driver of net profit growth. According to CreditSights estimates, income from investment banking, trading and wealth management showed double-digit year-over-year growth of around 10% to almost 30% for individual banks.

Fifth Third showed the strongest profit growth among the big regional eight banks - plus 40% year-on-year. Its revenue increased by 33%, net interest income by 35%, and fees and commissions by 29%.

Citizens Financial came in second place, up 39% year-over-year. Its revenue increased by 12%, net interest income by 12% and fees and commissions by 11% year-on-year.

KeyCorp Bank ranked third. Its net income grew 29% YoY, revenue grew at double-digit rates, and net interest margin increased 29 bps, while fee and commission income grew 8%.

Loan portfolios across a group of eight banks have returned to growth after weakness in 2023-2024, primarily driven by corporate lending, CreditSights said. In individual cases, annualized loan growth rates range from 4% at U.S. Bancorp to about 11% for the average loan portfolio at PNC.

Banks' capital adequacy ratios - Common Equity Tier 1 (CET1) - declined slightly quarter-over-quarter, mostly in the 40-80 basis point range quarter-over-quarter. Fifth Third described the worst situation: the core capital ratio fell 80 bps quarter-on-quarter to 10% on the back of the closing of the Comerica regional bank acquisition, growth in risk-weighted assets and intensive share buybacks.

The review also shows that KeyCorp, U.S. Bancorp and Regions have the best capital adequacy situation. For the former, the indicator decreased by 43 bps to 11.4%, for U.S. Bancorp it was unchanged at 10.8%, and for Regions it dropped by 20 bps to 10.7%.

This was due to a resumption of stronger credit growth, an increase in risk-weighted assets and the expansion of share buyback programs, where shareholder payouts temporarily outpace earnings generation, the survey explained, but did not note the presence of excessive risk on the eight's balance sheets.

For most of these banks, the generally positive view of analysts now dominates. The most optimistic view among analysts is for Citizens: 95% of analysts covering the bank advise buying its shares, according to MarketWatch data. About 75% of experts have assigned a "Buy" or equivalent rating to PNC and Fifth Third's shares.

M&T Bank and Regions are the most skeptical, with only about one in three analysts recommending buying their shares.

KeyCorp received a target price upgrade to $25 from BofA Securities after a strong first-quarter report - that's 13% above BofA Securities' current value. The bank's analysts point to faster-than-expected loan portfolio growth, record fees and marked improvement in profitability at comfortable capital adequacy levels.

This article was AI-translated and verified by a human editor