Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 5.4% gain has fallen behind the S&P 500’s 9% rise.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one bank stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Bank Stocks to Sell:
OFG Bancorp (OFG)
Market Cap: $2.00 billion
Originally founded in 1964 as a federal savings and loan institution, OFG Bancorp (NYSE: OFG) provides banking and financial services including commercial and consumer lending, wealth management, insurance, and trust services primarily in Puerto Rico and the U.S. Virgin Islands.
Why Is OFG Not Exciting?
- Muted 8.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Estimated net interest income decline of 2.2% for the next 12 months implies a challenging demand environment
- 55.7 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
OFG Bancorp is trading at $46.66 per share, or 1.4x forward P/B. If you’re considering OFG for your portfolio, see our FREE research report to learn more.
Washington Trust Bancorp (WASH)
Market Cap: $666.3 million
Founded in 1800 and operating as Rhode Island's oldest community bank, Washington Trust Bancorp (NASDAQ: WASH) is a regional bank holding company offering commercial banking, mortgage lending, personal banking, and wealth management services.
Why Do We Pass on WASH?
- Annual net interest income growth of 4.3% over the last five years was below our standards for the banking sector
- Inferior net interest margin of 2.3% means it must compensate for lower profitability through increased loan originations
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 9.6% annually
At $35.50 per share, Washington Trust Bancorp trades at 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than WASH.
One Bank Stock to Watch:
1st Source (SRCE)
Market Cap: $1.87 billion
Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.
Why Do We Like SRCE?
- Net interest margin expanded by 66.4 basis points (100 basis points = 1 percentage point) over the last two years, providing additional flexibility for investments
- Share buybacks propelled its annual earnings per share growth to 12.7%, which outperformed its revenue gains over the last five years
- Balance sheet strength has increased this cycle as its 9.4% annual tangible book value per share growth over the last five years was exceptional
1st Source’s stock price of $76.91 implies a valuation ratio of 1.4x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
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