Regional banks have been witnessing higher loan volumes this year amid surging reflation trades and a recovering economy, partially offsetting the decline in their interest income due to the near-zero benchmark interest rates. Furthermore, because interest rates are now expected to increase sooner than the Fed’s original prediction, we believe regional banking stocks First Horizon (NYSE:FHN) and Umpqua Holdings (NASDAQ:UMPQ) are well-positioned to grow substantially. But which of these two stocks is a better buy now? Read more to find out.First Horizon Corporation (FHN) is a financial and banking services company that operates in four segments: Regional Banking, Fixed Income, Corporate and non-Strategic. FHN is based in Memphis, Tenn. Umpqua Holdings Corporation (UMPQ) Portland, Ore., is a commercial banking and retail banking and brokerage service provider in the United States. The company operates through four segments: Wholesale Bank, Wealth Management, Retail Bank, and Home Lending.
While the prolonged low-interest-rate environment has negatively affected the interest income of regional banks, to a significant degree, the Fed’s latest projection of two potential interest hikes by late 2023 has rejuvenated investor interest in banks. Also, to the positive, banks’ lower interest income owing to the dovish monetary policies has been partially offset by the higher lending volumes.
On account of rising inflation concerns, St. Louis Federal Reserve President James Bullard and Boston Fed President Eric Rosenberg expect a benchmark interest rate hike in the second half of 2022. Regional banking companies FHN and UMPQ are poised to benefit substantially from such projected rate hikes.