Equity analysts name top US bank picks for 2022

Equity analysts are recommending investors buy banks, predicting continued outperformance in 2022.

With potential catalysts such as the return of loan demand and rising interest rates, several equity analysts have bullish outlooks for the U.S. banking sector. Banks bested the broader market in 2021, as well, with the S&P U.S. BMI Banks Index gaining 32.8% while the S&P 500 increased 26.9%.

"We recommend investors for 2022 overweight the banks broadly and spread lenders specifically. We think the combination of improving fundamentals and earnings estimates will lead to improved valuation and ultimately stock outperformance," said Christopher McGratty, head of U.S. bank research for Keefe Bruyette & Woods, during a Jan. 11 call to discuss KBW's best ideas for 2022.

On the other hand, analysts at Baird downgraded a pair of regional banks in a Jan. 7 report, arguing that an 8% gain in bank stocks in the year's first week of trading made the risk-reward trade-off unattractive for investors.

Small-cap banks

Hovde analysts named Colony Bankcorp Inc., First Bank, First Internet Bancorp, MVB Financial Corp. and Sterling Bancorp Inc. as best ideas among small-cap bank stocks for 2022.

"Earnings expectations and valuations are reasonable to potentially conservative, loan growth is likely to accelerate on a stated basis, and the likelihood of Fed action should aid profitability and EPS growth into [2023]," the analysts wrote in a Dec. 13 note.

Mid-cap banks

Citizens Financial Group Inc. is a popular "top pick" or "best idea" in 2022, receiving that designation from analysts at Wedbush, BofA Securities and KBW. The analysts wrote that the company is poised for outperformance due to a number of factors, including a number of pending deals.

A combination of factors — the bank's rate sensitivity, synergies from recent deals, its ongoing efficiency program and strategic initiatives such as its consumer national expansion — "should drive superior revenue growth and improved profitability," the BofA Securities analysts wrote.

BofA Securities analysts also named M&T Bank Corp., KeyCorp, Synovus Financial Corp., First Horizon Corp. and First BanCorp. as top ideas among regional banks.

Wedbush analysts named Huntington Bancshares Inc. as their top pick among regional banks in 2022, noting forthcoming cost saves from its merger with TCF Financial that closed in June 2021, the company's recent loan growth and an opportunity to accelerate revenue synergies by leveraging its products to TCF customers.

For regional banks as a whole, the current environment is "leading to tremendous earnings leverage when rates rise and loan growth rebounds," the analysts wrote in a Jan. 3 note.

The Wedbush analysts also named Fifth Third Bancorp as a top pick among regional banks. Among mid-cap banks, the analysts named Customers Bancorp Inc., Signature Bank, Silvergate Capital Corp., Western Alliance Bancorp., SVB Financial Group and East West Bancorp Inc. as top picks.

KBW also pegged Western Alliance as a "best idea" in 2022, along with Cadence Bank and State Street Corp.

Hovde analysts named First Merchants Corp., Old National Bancorp and Veritex Holdings Inc. as their best ideas among mid-cap banks.

Analysts at Stephens Inc. offered top picks by region, tabbing Primis Financial Corp. in the mid-Atlantic and Southeast, Signature Bank in the Northeast, First Busey Corp. in the Midwest, Cadence Bank in the South and PacWest Bancorp in the West Coast.

Large-cap banks

BofA Securities analysts named Wells Fargo & Co. as their top pick for 2022 in a Jan. 6 note. The analysts expect stronger return on equity from the bank thanks to a boost to EPS from asset sensitivity, a rebound of loan growth, a focus on improving efficiency, right-sizing capital and addressing regulatory issues.

Overall, the BofA Securities analysts were bullish on the performance of U.S. banks stocks in 2022, with two-thirds of their bank stocks "buy" rated.

"We believe that bank stocks remain in the midst of a multiyear bull run ... with the industry emerging from the pandemic with strong balance sheets and a laser focus on client acquisition," they wrote.