Bank stocks have regained investors’ confidence after a turbulent 2020. During the first half of 2021, the S&P Banks Select Industry Index rallied almost 24%, while the same was down approximately 12% last year.

One of the key themes during the first half of the year was the Federal Reserve signaling sooner-than-expected interest rate hike in the June FOMC meeting. The officials pointed out in their so-called “dot-plot” that there might be two rate hikes by 2023-end. This is a big change from the central bank’s March dot-plot projection of no change in rates through that time frame.

Apart from this, continued expectation of impressive economic rebound led to bullish investor sentiments. The Fed, in its latest Summary of Economic Projections, noted that the U.S. economy will grow at a rate of 7% in 2021, up from the previous projection of 6.5%. Steady fall in unemployment claims, solid housing market and rising consumer confidence are some of the key factors that will continue to drive economic recovery.

Though interest rates will remain at near-zero levels at least for now, the Fed hinting at rate hikes by 2023-end is going to support banks’ financials over time. Further, as the economy reopens gradually, demand for loans (that had been faltering so far) will rise.

Moreover, steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margin. The yield on 10-year U.S. Treasury Bond was 1.47% at June-end, up 55 basis points from 0.92% at the end of 2020. Thus, net interest income — which constitutes a large portion of banks’ revenues — is will get support from steepening of the yield curve and growth in loan demand.

Also, banks are undertaking business streamlining/expansion initiatives. These efforts are likely to provide support to banks’ fee income sources.

Following the nod from the Fed after clearing this year’s stress tests, major banks plan to reward shareholders with dividend hikes and bigger share buyback authorizations, effective third-quarter 2021. This indicates banks are capable of withstanding micro/macro-economic shocks, remain handily above the regulatory capital requirements and return more capital to shareholders. So, this has further instilled investors’ confidence in the banking industry.

5 Top-Performing S&P 500 Bank Stocks

While most bank investors had a lot to cheer about in the last six months, some stocks performed better than the others. The biggest winners in the S&P 500 Index were Wells Fargo (WFC Quick QuoteWFC - Free Report) , SVB Financial , Fifth Third Bancorp (FITB Quick QuoteFITB - Free Report) , Bank of America (BAC Quick QuoteBAC - Free Report) and People's United Financial .

In the first six months of 2021, these stocks have handily outperformed the S&P 500 Index’s rally of 14.9% and the Zacks Finance sector’s growth of 17.6%.

First-Half 2021 Price Performance

Image Source: Zacks Investment Research

Here's a brief description of the above-mentioned five S&P 500 bank stocks:

Wells Fargo: San Francisco-based Wells Fargo is one of the biggest financial services companies in the United States, with $1.96 trillion in assets and more than $1.4 trillion in deposits. The company has more than 5,000 branches, broad ATMs network, and Internet and other distribution channels across North America and globally.

Post the disclosure of the sales scandal in September 2016, Wells Fargo encountered several sanctions, including a cap imposed by the Fed on asset growth in early 2018. Nonetheless, the company has come a long way since then, especially with the central bank’s approval of risk management and governance overhaul plan earlier this year. The bank continues to invest in businesses to boost compliance and risk management capability.

Additionally, this Zacks Rank #3 (Hold) company has been undertaking several steps including divestiture of non-core businesses to focus on core operations, boost efficiency and strengthen the balance sheet.

Further, after clearing this year’s stress tests, Wells Fargo (which was one of the few banks that had to slash dividend last year due to restrictions) has announced plans to hike dividend by 100% to 20 cents per share. Also, the company authorized nearly $18 billion under share buyback plan.

Shares of Wells Fargo gained 50% in the first six months of 2021. For second-quarter 2021, the Zacks Consensus Estimate for earnings of 93 cents per share have been revised 3.3% north over the past 30 days. The figure suggests substantial improvement from loss of 66 cents incurred in the prior-year quarter.

SVB Financial: Headquartered in Santa Clara, CA, SVB Financial is a diversified financial services company. Incorporated in 1999, it operates through, among others, the Silicon Valley Bank, its primary subsidiary, providing a wide range of banking and financial products and services.

SVB Financial remains focused on its organic growth strategy, as evident from a consistent rise in loans, deposits and net interest income over the past several years. Further, the company is undertaking efforts to expand globally. While its U.K. and Asia operations seem to be growing, the businesses in Canada and Germany are expected to further boost revenues.

Further, SVB Financial is expanding through strategic buyouts. In January, the company inked a deal to acquire Boston Private, which is expected to further strengthen its private bank and wealth management offerings. Earlier in December 2020, it acquired the debt investment business of WestRiver Group, and in 2019, the company acquired Leerink Holdings LLC, now re-named as SVB Leerink. These deals will continue supporting its position as one of the foremost providers of financing solutions to innovative companies.

Over the last six months, the shares of this Zacks Rank #3 stock have soared 43.5%. Also, for second-quarter 2021, the Zacks Consensus Estimate for earnings of $6.39 per share has moved marginally upward over the past 30 days. The figure implies 44.6% year-over-year growth.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp: With assets of $207 billion, Cincinnati, HO-based Fifth Third Bancorp has 1,098 full-service banking centers across 10 states throughout the Midwestern and Southeastern regions of the United States.

Fifth Third Bancorp has expanded non-interest income base over the years with help of strategic investments through North Star initiatives and the MB Financial buyout (closed in March 2019). These are expected to support revenue growth and result in expense savings.

Specifically, the company expects an annual pre-tax income benefit of $60-$75 million by 2022. Also, the transaction is likely to lower expenses by $255 million. Further, the bank remains focused on branch consolidation efforts. Further, strong balance sheet and liquidity positions show that the company’s capital deployment activities are sustainable.

Shares of this Zacks Rank #3 company jumped 38.6% in the first half of the year. Also, the Zacks Consensus Estimate for earnings of 81 cents per share for second-quarter 2021 has moved 1.3% upward over the past 30 days. The figure indicates year-over-year growth of 170%.

Bank of America: Headquartered in Charlotte, NC, Bank of America is one of the largest financial holding companies in the United States. With total assets worth $2.97 trillion as of Mar 31, 2021, it provides a diverse range of banking and non-banking financial services, as well as products.

Bank of America continues to align the banking center network according to customer needs. The bank is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades. Further, this Zacks Rank #2 (Buy) company plans to add 2,200 more ATMs to its network. These initiatives, along with the success of Zelle and Erica, will enable it to improve digital offerings, as well as cross sell several products.

Also, the acquisition of Axia Technologies is likely to further strengthen the bank’s position in the lucrative healthcare payments solution market. Prudent expense management continues to support the company’s financials.

Following the clearance of this year’s stress test, Bank of America intends to hike quarterly dividend by 17% to 21 cents per share and repurchase $25 billion worth of shares over time.

Over the last six months, the stock has gained 36%. Moreover, for second-quarter 2021, the Zacks Consensus Estimate for earnings of 75 cents per share has remained unchanged over the past 30 days. The figure implies 102.7% year-over-year growth.

People’s United: Founded in 1842 and headquartered in Bridgeport, CT, People’s United is a diversified financial services company. It operates across Connecticut, Vermont, New Hampshire, Maine, Massachusetts and New York.

This Zacks Rank #3 company has been growing through acquisitions, aided by a solid balance sheet and liquidity position. In February, the company signed an all-stock deal worth $7.6 billion to merge with M&T Bank Corporation.

Strong credit quality is another positive for People’s United. Though credit metrics were under pressure last year due to the coronavirus mayhem, the same is expected to improve with the normalization of activities.

Further, in April, the bank hiked its quarterly dividend by 1.4% to 18.25 cents per share. This marked the 28th consecutive annual dividend hike. With favorable debt/equity ratio and consistently improving quarterly performance, People’s United’s dividend payouts seem sustainable.

Shares of People’s United rallied 32.5% in the first six months of 2021. For second-quarter 2021, the Zacks Consensus Estimate for earnings of 33 cents per share has been unchanged over the past 30 days. The figure suggests year-over-year growth of 37.5%.

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