Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 23.4% return has trailed the S&P 500 by 9.3 percentage points.

While some banks have strong balance sheets and diversified revenue streams that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three bank stocks that may face trouble.

Veritex Holdings (VBTX)

Market Cap: $1.83 billion

Founded during the 2009 financial crisis when many banks were failing, Veritex Holdings (NASDAQGM:VBTX) operates Veritex Community Bank, providing commercial and retail banking services to small and medium-sized businesses and professionals in Texas.

Why Does VBTX Give Us Pause?

1. Annual sales declines of 2.9% for the past two years show its products and services struggled to connect with the market during this cycle
2. Estimated net interest income growth of 1.5% for the next 12 months implies demand will slow from its five-year trend
3. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 13.3% annually, worse than its revenue

Veritex Holdings’s stock price of $33.50 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than VBTX.

First Horizon (FHN)

Market Cap: $11.45 billion

Tracing its roots back to 1864 during the Civil War era, First Horizon (NYSE: FHN) is a Tennessee-based bank holding company that provides commercial and consumer banking, wealth management, and specialty financial services across multiple states.

Why Is FHN Not Exciting?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 6.4% annually over the last two years
2. Estimated net interest income growth of 3.4% for the next 12 months implies demand will slow from its five-year trend
3. Net interest margin dropped by 20.3 basis points (100 basis points = 1 percentage point) over the last two years, implying the firm’s loan book profitability fell as competitors entered the market

At $22.56 per share, First Horizon trades at 1.3x forward P/B. Check out our free in-depth research report to learn more about why FHN doesn’t pass our bar.

Starwood Property Trust (STWD)

Market Cap: $7.13 billion

With a diverse portfolio spanning commercial properties, residential mortgages, infrastructure loans, and real estate servicing, Starwood Property Trust (NYSE: STWD) is a real estate investment trust that originates, acquires, and manages commercial mortgages, residential loans, and other real estate investments.

Why Should You Sell STWD?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last two years
2. Annual net interest income declines of 2.5% for the past four years show its loan book struggled during this cycle
3. Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 4.1% annually over the last two years

Starwood Property Trust is trading at $19.48 per share, or 1x forward P/B. If you’re considering STWD for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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