Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. But concerns about loan losses and tightening regulations have tempered enthusiasm, limiting the banking industry’s gains to 10.3% over the past six months. This return lagged the S&P 500’s 18.6% climb.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here are two bank stocks boasting durable advantages and one we’re steering clear of.
One Bank Stock to Sell:
TowneBank (TOWN)
Market Cap: $2.58 billion
Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ: TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.
Why Does TOWN Give Us Pause?
- Annual net interest income growth of 7.1% over the last five years was below our standards for the banking sector
- Costs have risen faster than its revenue over the last four years, causing its efficiency ratio to worsen by 12.1 percentage points
- Tangible book value per share is projected to remain flat over the next 12 months as profitability decelerates from its two-year trend
TowneBank’s stock price of $35.05 implies a valuation ratio of 1.2x forward P/B. To fully understand why you should be careful with TOWN, check out our full research report (it’s free).
Two Bank Stocks to Watch:
Cadence Bank (CADE)
Market Cap: $7.05 billion
With roots dating back to 1885 and a strategic focus on middle-market commercial lending, Cadence Bancorporation (NYSE: CADE) is a bank holding company that provides commercial banking, retail banking, and wealth management services to middle-market businesses and individuals.
Why Could CADE Be a Winner?
- Market share has increased this cycle as its 17% annual net interest income growth over the last five years was exceptional
- Estimated net interest income growth of 15.1% for the next 12 months implies its momentum over the last five years will continue
- Balance sheet strength has increased this cycle as its 23.6% annual tangible book value per share growth over the last two years was exceptional
At $37.83 per share, Cadence Bank trades at 1.2x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
1st Source (SRCE)
Market Cap: $1.51 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 Does SRCE Stand Out?
- Net interest margin grew by 29 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more chips to play with
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 7.9% over the last two years outstripped its revenue performance
- Impressive 8.3% annual tangible book value per share growth over the last five years indicates it’s building equity value this cycle
1st Source is trading at $61.56 per share, or 1.2x forward P/B. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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