Regional Bank Rebound: 3 Overlooked Banks to Watch in 2026

Core Insights - Regional banks faced significant challenges in 2023 and most of 2024 due to deposit runs and multiple bank failures, leading to declines in share prices for banks like Zions Bancorporation, Prosperity Bancshares, and Regions Financial Corporation [2] - By 2025, efforts to stabilize balance sheets and improve liquidity began to yield positive results, with many banks returning to year-over-year earnings growth, indicating a rebound in the regional bank sector [3] - A shift in the Federal Reserve's policy towards a more dovish stance in 2025 improved market sentiment, easing investor concerns and reducing funding costs, which contributed to a rebound in share prices [4] Regional Bank Performance - Industry consolidation and selective growth opportunities have supported performance, with increased mergers and acquisitions lifting valuations as many stocks were priced cheaply relative to historical norms [5] - Regional banks like Zions, Prosperity, and Regions are expected to benefit from a rebound as local economies recover, with their trailing 12-month price/earnings ratios being below industry averages [6] Zions Bancorporation (ZION) - Zions is well-positioned for growth due to its focus on faster-growing Western markets, which could drive higher demand for commercial and industrial loans as local economies recover [7] - The bank's historically strong deposit franchise may support margin improvement as funding costs ease with lower interest rates [8] - Zions has experienced steady organic growth, with a 2% CAGR in revenues over the last five years and a 4.1% CAGR in loans and leases [12] Prosperity Bancshares (PB) - Prosperity Bancshares has expanded significantly through acquisitions, completing over 30 deals since 1998, which is expected to enhance its footprint across Texas [19] - The company has seen a 7.8% CAGR in net revenues over the last five years, driven by solid loan balances and improved deposit mix [20] - As interest rates decline, PB's net interest margin is expected to improve, supported by a solid loan pipeline and efforts to enhance fee income [21] Regions Financial Corporation (RF) - Regions Financial has experienced a 3.2% CAGR in loans and a 6% CAGR in net interest income over the past five years, with a solid foundation for future loan growth due to its broad market exposure [24] - The company is focused on diversifying its revenue streams through investments and acquisitions, which is expected to support long-term growth [26] - Regions announced a 6% increase in its quarterly dividend and has a share repurchase program in place, indicating a commitment to returning value to shareholders [27]