US bank stock returns move higher in July after another Fed rate hike

US bank stocks recorded their best monthly performance yet in 2023, outperforming the broader market in terms of return in July.

The median return of major exchange-traded banks for the month was 13.1%, up from 6.2% in June and negative 6.0% in May, according to S&P Global Market Intelligence data. The S&P US BMI Banks index's return was 11.8%, while the S&P 500's return was 3.2%.

Bank stocks advanced on July 26 when the Fed decided to hike rates by another 25 basis points, bringing the range for the central bank's policy target to 5.25% to 5.5%. On that date, the S&P US BMI Banks index's return was the highest during the month at 11.9%.

In July, many banks reported second-quarter earnings, with quarter-over-quarter earnings decidedly more negative for banks with assets between $100 billion and $1 trillion. Most regional and community banks reported sequential declines in earnings.

Best-performing stocks

The best-performing stocks list for July consisted mostly of regional banks as they bounced back after facing pressure due to the recent regional bank failures. Dallas-based First Foundation Inc. recorded the highest month-to-date total return of 84.1%.

Phoenix-based Western Alliance Bancorp., one of the banks whose stock declined following the bank failures, was part of the list with a return of 42.4%.

Western Alliance posted higher-than-expected deposit growth in the second quarter, but it also reported a weakening of some credit quality metrics, largely due to commercial real estate loans. Investors appeared to have focused on the positives as Western Alliance's share price rose after the company's earnings release and earnings call.

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Salt Lake City-based Zions Bancorp. NA's return for the month was 42.4%. The company's share price also increased after its year-ahead net interest income guidance was raised.

Some of the other regionals on the list of the best-performing stocks were Miami Lakes, Fla.-based BankUnited Inc., with a 40.0% return; West Reading, Pa.-based Customers Bancorp Inc., with a 38.7% return; and Cleveland-based KeyCorp, with a 33.2% return.

Danville, Va.-based American National Bankshares Inc. ended the month with a return of 42.4%. On July 25, the company announced its planned sale to Richmond, Va.-based Atlantic Union Bankshares Corp. in an all-stock transaction valued at about $416.8 million.

Worst-performing stocks

Alexandria, Va.-based Burke & Herbert Financial Services Corp. led the worst-performing stocks ranking as it returned negative 15.9% in July. Reston, Va.-based John Marshall Bancorp Inc. and Mansfield, Pa.-based Citizens Financial Services Inc. ranked second, each logging a return of negative 5.4%.

Charlottesville, Va.-based Blue Ridge Bankshares Inc. was among the worst performers, recording a return of negative 4.7%.

In the month, Blue Ridge Bankshares announced its board decided to forgo the declaration and payment of a cash dividend on the company's common stock in the third quarter. It also disclosed the resignation of its president and CEO and that it recorded a loss on the sale of its wholesale mortgage business during the second quarter.

Dallas-based regional bank Hilltop Holdings Inc. was also on the list with a return of negative 1.7%.