Goliaths of the banking world such as JPMorgan
But from an investment standpoint, regional banks look even more attractive.
Regional banks are a lot more stable now. Quite a few of them have witnessed a significant decline in provisions for loan losses (PLLs), suggesting their managements believe the worst is behind them. According to the Federal Deposit Insurance Corp.'s fourth-quarter report for 2010, insured institutions reduced provisions to $31.6 billion from $62.9 billion a year earlier -- a sharp decline of almost 50%. This, in fact, is the lowest since the third quarter of 2007.
Credit quality is improving at the same time. Nonperforming assets fell for a third consecutive quarter while net charge-offs exceeded loss provisions by almost $10 billion.
Now that the dust has settled a bit, smaller banks are looking all the more appealing. Let's take a look at a few of them that have been showing resilience and look poised for growth in the long run.
Hudson City Bancorp
Improvement in its overall credit portfolio enabled KeyCorp
The Foolish bottom line
Clearly, regional banks are still vulnerable. Their commercial and residential portfolios still make them susceptible to continued sluggishness on the housing front. Domestic loan growth also has been a disturbing trend in the first quarter and may adversely impact the lending business.
There's also another risk to consider. Should interest rates rise, borrowers with floating interest rates may default more, resulting in regional banks' profit margins narrowing. But for now, these banks have proved their potential to stay afloat. I'm impressed.
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