Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 18.3% over the past six months. At the same time, the S&P 500 was up 13.9%.

Nevertheless, investors should tread carefully as many banks are cyclical due to their exposure to credit risk and regulatory changes. On that note, here are three bank stocks that may face trouble.

Westamerica Bancorporation (WABC)

Market Cap: $1.23 billion

Founded in 1884 and serving communities from Mendocino County in the north to Kern County in the south, Westamerica Bancorporation (NASDAQ: WABC) provides banking services to individuals and small businesses throughout Northern and Central California.

Why Does WABC Give Us Pause?

1. Muted 6.8% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
2. Net interest margin dropped by 46.7 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
3. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable

Westamerica Bancorporation’s stock price of $49.24 implies a valuation ratio of 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than WABC.

Regions Financial (RF)

Market Cap: $24.12 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 Does RF Worry Us?

1. Annual net interest income growth of 5.4% over the last five years was below our standards for the banking sector
2. 41 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
3. Earnings per share were flat over the last two years and fell short of the peer group average

At $27.56 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.

Republic Bancorp (RBCAA)

Market Cap: $1.44 billion

With roots dating back to 1974 and operating across multiple states including Kentucky, Indiana, Florida, Ohio, and Tennessee, Republic Bancorp (NASDAQGS:RBCA.A) is a Kentucky-based financial holding company that operates a bank offering traditional banking, mortgage services, and specialized financial products.

Why Are We Cautious About RBCAA?

1. Annual net interest income growth of 9.5% over the last five years was below our standards for the banking sector
2. Projected net interest income decline of 1.7% for the next 12 months points to a tough demand environment ahead
3. Estimated tangible book value per share growth of 7.5% for the next 12 months implies profitability will slow from its two-year trend

Republic Bancorp is trading at $73.85 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including RBCAA in your portfolio.

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