The Zacks Analyst Blog Highlights: Bank of America, Wells Fargo, Bank of the Ozarks, Signature Bank and Western Alliance Bancorporation

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Dec 24, 2014, 09:39 ET

CHICAGO, Dec. 24, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Bank of America Corp. (NYSE:BAC-Free Report), Wells Fargo & Company (NYSE:WFC-Free Report), Bank of the Ozarks, Inc. (Nasdaq:OZRK-Free Report), Signature Bank (Nasdaq:SBNY-Free Report) and Western Alliance Bancorporation (NYSE:WAL-Free Report).

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Here are highlights from Tuesday's Analyst Blog:

Bank Stocks That Outperformed the S&P 500 in 2014

Since the beginning of 2014, the overall operating environment for banks had been quite tough. Nevertheless, banking stocks showed strong resilience and continued to confront challenges valiantly. Despite weakness in mortgage banking and capital market businesses, a modest improvement in investment banking, along with cost-control measures (streamlining operations and job cuts) and balance sheet restructuring, helped banks maintain profitability.

This was further evident from the overall banking stock performance. While the year-to-date gain of S&P 500 was nearly 13.5% (as of Dec 22, 2014), S&P 500 Banks (Industry Group) returned 14.1%.

Fundaments at Play

The prevailing low interest rate environment continued to curb net interest margin growth, thereby putting pressure on net interest income. Moreover, given the increased regulatory restrictions, banks found it difficult to generate non-interest income. Consequently, overall revenue growth suffered. Also, several mandatory defensive measures, like maintaining higher capital ratios, are restricting growth.

Additionally, legal costs became the major earnings dampener for big banks such as Bank of America Corp. (NYSE:BAC-Free Report) and Wells Fargo & Company (NYSE:WFC-Free Report). Though banks are making efforts to move past their litigation headwinds, we do not expect such expenses to abate soon.

Nevertheless, credit quality -- one of the most important performance indicators -- kept on improving, backed by low interest rates, which are expected to prevail at least til mid-2015. Further, the banks witnessed improving trends in mortgage refinancing, auto lending and credit cards, which were able to offset lower mortgage demand to some extent. Also, a boom in M&A and IPO activities led to robust investment banking business.

Earnings Performance

Overall earnings performance of banks has been modest. Better-than-expected earnings remained the key driver of their performance, but this was largely attributable to overly conservative estimates.

On a year-over-year basis, performance of Major Banks remained disappointing, with earnings declining 13.6%, 2.7% and 11% for first quarter, second quarter and third quarter, respectively.

Nonetheless, performance of Banks & Thrifts was impressive. Though earnings declined 6.6% year over year in the first quarter, a steady improvement was witnessed over the last two quarters, with respective growth of 8.9% and 18.7%.

3 Banks That Returned More than S&P 500

Bank of the Ozarks, Inc. (Nasdaq:OZRK-Free Report), headquartered in Little Rock, AR, operates as the bank holding company for Bank of the Ozarks and provides a wide range of retail and commercial banking services. As of Sep 30, 2014, the company had 165 offices in Arkansas, Georgia, Texas, North Carolina, Florida, Alabama, South Carolina, New York and California.

Bank of the Ozarks presently holds a Zacks Rank #2 (Buy) and has gained 29.03% year-to-date. The company also has an average earnings surprise of 3.74% over the trailing four quarters.

Signature Bank (Nasdaq:SBNY-Free Report) provides various business and personal banking products and services. The New York-based company operates 27 private client offices located in the city's metropolitan area.

Signature Bank also carries a Zacks Rank #2 and has gained 15.12% year-to-date. Over the trailing four quarters, it delivered an average earnings beat of 4.4%.

Western AllianceBancorporation (NYSE:WAL-Free Report) operates as the bank holding company for Western Alliance Bank that provides various banking and related services. Headquartered in Phoenix, AZ, the company offers services in Nevada, Arizona and California.

Western Alliance Bancorporation sports a Zacks Rank #1 (Strong Buy) and has gained 14.71% year-to-date. Also, over the trailing four quarters, the company posted an average earnings surprise of 7.21%.

Road Ahead

With a top Zacks Rank and impressive earning streak, we expect these stocks to outperform S&P 500 in 2015 as well. Further, with the U.S. economy showing signs of revival, the macroeconomic conditions are expected to support banks' growth in the year to come. Hence, it will be a good decision to invest in these banks right away.

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Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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