Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 9.7% gain for the banking industry over the past six months - 1.7 percentage points higher than the S&P 500.
Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. On that note, here are three bank stocks we’re passing on.
Regions Financial (RF)
Market Cap: $22.9 billion
Tracing its roots back to 1971 and operating in a region known as the "heart of Dixie," Regions Financial (NYSE: RF) is a financial holding company that provides banking services, wealth management, and specialty financial solutions across the South, Midwest, and Texas.
Why Are We Hesitant About RF?
- Net interest income trends were unexciting over the last five years as its 5.2% annual growth was below the typical banking firm
- Estimated net interest income growth of 3.2% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 8.6% annually
At $26.84 per share, Regions Financial trades at 1.3x forward P/B. If you’re considering RF for your portfolio, see our FREE research report to learn more.
Banner Bank (BANR)
Market Cap: $2.20 billion
Founded in 1890 in Walla Walla, Washington, and evolving through more than a century of economic cycles, Banner Corporation (NASDAQ: BANR) operates Banner Bank, providing commercial banking services, loans, and financial products to individuals and businesses across Washington, Oregon, California, Idaho, and Utah.
Why Does BANR Worry Us?
- Annual revenue growth of 3.1% over the last five years was below our standards for the banking sector
- Muted 4.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.4% annually
Banner Bank’s stock price of $64.78 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than BANR.
BankUnited (BKU)
Market Cap: $3.37 billion
Born from the ashes of a failed Florida thrift during the 2009 financial crisis, BankUnited (NYSE: BKU) is a regional bank that provides commercial lending, deposit services, and treasury solutions to businesses and consumers primarily in Florida and the New York metropolitan area.
Why Does BKU Fall Short?
- Annual net interest income growth of 5.5% over the last five years was below our standards for the banking sector
- Net interest margin of 2.9% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows its incremental sales were less profitable, as its 1.2% annual earnings per share growth trailed its revenue gains
BankUnited is trading at $46.37 per share, or 1.1x forward P/B. To fully understand why you should be careful with BKU, check out our full research report (it’s free).
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