Year 2023 has not been great for bank stocks. Since the beginning of the year, the Federal Reserve has been ultra-aggressive in raising interest rates to tame the “sticky” inflation.

Banks typically thrive in a rising interest rate environment. But this was not the case this time. While a few big banks did benefit from higher rates, most medium and small-sized banks suffered. Faster rate hikes placed these banks in a disadvantageous situation as demand for loans gradually waned and funding costs increased. This put pressure on banks’ net interest margin (NIM) growth.

Moreover, the fastest pace of rate hikes since the 1980s triggered a regional banking crisis in early March, which was the primary reason for the collapse and failure of three major regional banks (Silicon Valley Bank, Signature Bank and First Republic Bank).

A host of issues, including the risk of a potential recession, slowing loan demand, rising funding costs, and high levels of fixed-rate mortgage and commercial real estate loans, as well as uninsured deposits in balance sheets, made the situation more difficult for regional banks.

Huge exposure to uninsured deposits and asset-liability mismatches were bigger concerns for some banks, as they witnessed heavy deposit outflows.

Nevertheless, as the year comes to an end and we prepare to enter 2024, investors are gradually turning optimistic toward banks. The primary reason for this optimism is that at the end of the two-day FOMC meeting earlier this month, the Fed signaled that it is done with raising rates this cycle. Given that inflation has been steadily cooling and U.S. economic growth has been surprisingly robust, the central bank is now expected to cut rates thrice in 2024.

The Fed officials, through the latest dot-plot, have indicated that rates will come down to 4.6% by the end of 2024, lower than the 5.1% estimated in September.

During a press conference following the decision, Fed chairman Jerome Powell said, “We believe that we are likely at or near the peak rate for this cycle. Participants didn't write down additional hikes that we believe are likely. So that's what we wrote down. But participants also didn't want to take the possibility of further hikes off the table. So that's really what we were thinking.”

Thus, the central bank indicating rate cuts next year comes as a silver lining for banks. In addition to this, several measures taken by banks of late, such as revenue diversification efforts to boost fee income and balance sheet repositioning, will likely support revenues in the coming quarters.

Hence, we believe that bank stocks, which have been laggards since the beginning of 2023, are poised for a turnaround in 2024. Thus, we present three stocks from the banking sector, which have performed rather poorly so far this year but are expected to witness a rebound in 2024.

All three stocks have a market capitalization of more than $450 million and have witnessed their share prices decline more than 10% so far this year. We recommend adding these stocks to your portfolio now, as analysts seem optimistic regarding their earnings growth potential in the coming year.

3 Bank Stocks to Bet on for a Rebound in 2024

Cullen/Frost Bankers (CFR Quick QuoteCFR - Free Report) : Headquartered in San Antonio, TX, the company, through its subsidiaries, provides a broad array of products and services throughout numerous Texas markets. CFR has a market cap of $6.9 billion. So far this year, shares of the company have lost 18.4%.

Cullen/Frost has been enhancing its presence in the lucrative Texas markets. In June 2023, the company announced plans to double its financial centers to 34 in the Austin region by 2026. Management expects to open approximately 15 branches in the Texas region in 2024. Supported by a robust balance sheet and such branch openings, CFR’s top line is expected to be positively impacted.

The company’s sales are projected to grow marginally next year from the current year. Moreover, analysts seem optimistic regarding its earnings growth potential. For 2024, the Zacks Consensus Estimate for CFR’s earnings has been revised 4.4% upward over the past 60 days. Currently, CFR carries a Zacks Rank #2 (Buy).

Glacier Bancorp (GBCI Quick QuoteGBCI - Free Report) : This Zacks Ranked #2 stock has a market cap of $4.7 billion. Headquartered in Kalispell, MT, GBCI operates as the bank holding company for Glacier Bank that provides commercial banking services to individuals, small to medium-sized businesses, community organizations, and public entities in the United States.

The company also provides construction and permanent loans on residential real estate; consumer land or lot loans; unimproved land and land development loans; and residential builder guidance lines comprising pre-sold and spec-home construction, and lot acquisition loans.

GBCI’s acquisition of Community Financial Group, the parent company of Wheatland Bank, will be its 25th acquisition since 2000. The deal aligns with GBCI’s history of consistently adding high-quality community banks to its proven banking model.

So far this year, shares of GBCI have lost 13.6%. Its earnings estimates for 2024 have witnessed an upward revision of 5.7% over the past 60 days. The company’s 2024 sales growth rate is expected to be 1.7%.

Arrow Financial Corporation (AROW Quick QuoteAROW - Free Report) : Headquartered in Glens Falls, NY, the firm is a multi-bank holding company with more than $4 billion in assets. AROW has a market cap of more than $480 million.

Year to date, AROW’s share price has declined 12%. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Arrow Financial remains committed to delivering value for its shareholders, customers and communities. The company has been witnessing robust growth in loans and deposit balances, which will likely aid the top line in the near term.

For 2024, AROW’s sales are projected to grow 9%. The Zacks Consensus Estimate for the company’s next-year earnings has been revised 12.6% upward over the past 60 days.