BofA names 6 bank stocks poised to outperform as Q1 earnings season begins

The earnings calendar was about to get serious. On Wednesday of that first week in April, the major banks would begin reporting their first-quarter results—JPMorgan Chase, Wells Fargo, Goldman Sachs, and others stepping up to show what they'd made in the opening months of 2021. For investors watching the broader market, this mattered. Banks were about to become the story.

The numbers backing this were substantial. Across the entire S&P 500, earnings growth for the first quarter was tracking at 24.5%, according to FactSet's senior earnings analyst John Butters. That was nearly at the ceiling—the highest year-over-year growth rate the index had ever recorded was 26.1%, set back in the third quarter of 2018. Within that surge, the financial sector was positioned to report the second-highest earnings growth of any industry group. But the real engine, analysts expected, would be the banks themselves. They were forecast to be the single largest driver of growth for the entire financial sector.

Bank of America's research team, led by analyst Ebrahim Poonawala, saw the setup as genuinely bullish. The macroeconomic conditions were aligning. BofA's economists were projecting gross domestic product growth above 7% for the year. Interest rates were rising. Consumers were worried about inflation—more anxious about prices than they'd been in seven years. On the surface, this sounds like it would hurt businesses. For banks, it was the opposite. Rising rates meant the Federal Reserve was tightening to cool an overheating economy. Strong growth meant consumers and businesses wanted to borrow. Banks profit on the spread between what they charge borrowers and what they pay depositors. In this environment, that spread could widen. The math was simple and favorable.

BofA identified six banks it believed were positioned to outperform as earnings came in. SVB Financial topped the list, positioned to benefit from the ongoing digitization of banking and the global economy. The firm had just acquired Boston Private, a move Poonawala saw as a meaningful growth engine that would also diversify its lending book. Signature Bank was next—investors would be watching how aggressively the bank could convert its deposit growth into spread revenue, and whether it could continue operating with the excess cash reserves it was holding. East West Bancorp had a different advantage: its operations in China and Hong Kong. Because China was further along in digital banking than the United States, management could extract insights from a more advanced market and apply them at home. The bank was also expected to post above-average loan growth in the quarter, and there were signs that its core margins had bottomed out.

New York Community Bancorp was expected to deliver another quarter of strong credit quality and expanding net interest margins—the measure of how much a bank makes from loans relative to what it pays depositors. First Bancorp was on the list partly on anticipation: investors were watching for a potential share buyback announcement, and the size of that authorization could be a catalyst for the stock. Finally, Great Western was included because management had been taking concrete steps to rebuild the franchise—hiring talent, investing in technology, and focusing on growth markets. These actions, Poonawala wrote, should drive a rebound in top-line revenue growth.

What tied these six together wasn't just that they were banks in a favorable environment. Poonawala's team was looking for banks with what it called unique business models or self-help levers—specific structural advantages or management actions that could drive growth beyond what the broader sector tailwinds alone would provide. The earnings season was about to test whether those advantages were real.