Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have caused the industry to lag recently as banking stocks have collectively shed 1.7% over the past six months. This performance is a noticeable divergence from the S&P 500’s 15.2% return.
A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. Taking that into account, here are three bank stocks best left ignored.
Customers Bancorp (CUBI)
Market Cap: $2.51 billion
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE: CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Does CUBI Fall Short?
- Muted 9.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Net interest margin of 3.2% is well below other banks, signaling its loans aren’t very profitable
- Annual earnings per share growth of 4.2% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $74.10 per share, Customers Bancorp trades at 1.1x forward P/B. If you’re considering CUBI for your portfolio, see our FREE research report to learn more.
Banc of California (BANC)
Market Cap: $2.72 billion
Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE: BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.
Why Do We Pass on BANC?
- Net interest income trends were unexciting over the last five years as its 2.5% annual growth was below the typical banking firm
- Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 15.9 percentage points
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 24.3% annually
Banc of California’s stock price of $17.14 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why BANC doesn’t pass our bar.
Walker & Dunlop (WD)
Market Cap: $1.17 billion
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE: WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Are We Bearish on WD?
- Loans are facing significant end-market challenges during this cycle as net interest income has declined by 41.6% annually over the last five years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 13.7% annually
- Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 8.5% annually over the last five years
Walker & Dunlop is trading at $34.22 per share, or 0.7x forward P/B. Dive into our free research report to see why there are better opportunities than WD.
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