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The 5 Best US Bank Stocks of 2018 (So Far)

Matthew Frankel, The Motley Fool

After fantastic performances in 2016 and 2017, the financial sector has been a laggard so far in 2018. Despite a 5% rise in the S&P 500, the financial sector has fallen by about 1.4%. Perhaps the major banking industry catalysts such as tax reform and rising interest rates had already been mainly priced in, or maybe the sector is just taking a breather. Whatever the case, 2018 has been a somewhat disappointing year for bank investors as a whole.

Having said that, not all bank stocks have performed poorly. Here are five U.S. banks that have handily beaten the S&P so far this year, and a little bit about why each one has done so well.

Bank teller greeting a customer.

Image source: Getty Images.

Company

Market Capitalization

Dividend Yield

YTD Stock Performance

SVB Financial (NASDAQ: SIVB)

$16.3 billion

None

31.3%

Popular Inc. (NASDAQ: BPOP)

$4.7 billion

2.2%

30%

TCF Financial (NYSE: TCF)

$4.3 billion

2.4%

23.9%

Commerce Bancshares (NASDAQ: CBSH)

$7.3 billion

1.4%

22.7%

First Financial Bancorp (NASDAQ: FFBC)

$3.1 billion

2.4%

21.4%

Data sources: Market caps and dividend yields from TD Ameritrade and performance from YCharts, as of July 20, 2018. Only U.S.-based banks with market capitalizations of $1 billion or higher were considered.

SVB Financial

SVB Financial is the holding company for Silicon Valley Bank, an institution that specializes in banking service for entrepreneurs and private equity.

To put it mildly, SVB has grown tremendously in recent years, although the majority of this year's strong performance can be attributed to a stellar first-quarter earnings report. Not only did the bank beat estimates on both the top and bottom lines, but it reported 35% annual revenue growth, a 20% jump in the bank's loan portfolio, and a staggering 46% increase in client investment funds. What's more, SVB is growing in profitability and efficiency as well. The bank's return on equity (ROE) of 18.1% and return on assets (ROA) of 1.51% are both among the best in the banking industry and represent tremendous improvement.

Popular

Popular is a Puerto Rican bank holding company with about $46 billion in assets that operates in Puerto Rico (Banco Popular de Puerto Rico) as well as in the continental U.S. (Banco Popular North America).

Popular's outperformance can mainly be attributed to the continuing recovery of Puerto Rico from Hurricane Maria. Net interest income as well as non-interest income have both returned to pre-disaster levels, and credit quality isn't as bad as many had feared. For example, the bank's net charge-off rate dropped to 0.90% in the first quarter from 1.61% at the end of 2017. Even after its outperformance, Popular still trades for a significant discount to book value, so it's fair to say that the market is still pricing in a fair amount of risk.

TCF Financial

TCF Financial is a regional bank with 318 branches in Illinois, Minnesota, Michigan, Colorado, Wisconsin, Arizona, and South Dakota. The bank's impressive stock performance can be attributed to particularly strong improvement in several key metrics.

Specifically, the bank's first-quarter earnings report showed 9% revenue growth, significant margin expansion, and a massive improvement in efficiency. So, the bank's 56% earnings growth wasn't just because of tax reform.

Commerce Bancshares

Commerce Bank is based in Missouri and has a physical presence in Kansas, Illinois, Oklahoma, and Colorado as well. For the first quarter, the bank reported impressive 42% year-over-year earnings growth. This was fueled by a 24-basis-point margin expansion and strong growth in fee income, including a 16% jump in card-related revenue. Additionally, the bank's 58% efficiency ratio (down from over 62% a year ago) is among the best of its peer group.

First Financial Bancorp

The smallest bank on this list, First Financial Bank operates just over 150 branches in Ohio, Indiana, Illinois, and Kentucky. And unlike the other top-performing banks, First Financial's earnings were actually flat year over year, despite tax reform generally boosting bank profits.

However, the bank's earnings were significantly depressed thanks to costs related to its merger with MainSource Financial Group, which was completed during the second quarter. Ignoring the effects of the merger, First Financial's earnings were up by an impressive 54% year over year. Furthermore, the bank's adjusted 1.6% return on assets is among the best in the business, as was its 30-basis-point increase in net interest margin.

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SVB Financial provides credit and banking services to The Motley Fool. Matthew Frankel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends SVB Financial Group. The Motley Fool has a disclosure policy.