Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. But concerns about loan losses and tightening regulations have tempered enthusiasm, and over the past six months, the banking industry has pulled back by 6.9%. This drop was discouraging since the S&P 500 held its ground.
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 swiping left on.
One BankStock to Sell:
United Community Banks (UCB)
Market Cap: $3.38 billion
Starting as a small community bank in 1950 and expanding through strategic acquisitions across the Southeast, United Community Banks (NYSE: UCB) is a regional bank holding company that provides financial services including loans, deposits, wealth management, and merchant services across the southeastern United States.
Why Are We Hesitant About UCB?
- Sales trends were unexciting over the last two years as its 1.8% annual growth was below the typical bank company
- Net interest margin of 3.3% reflects its high servicing and capital costs
- Annual earnings per share growth of 1.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $27.85 per share, United Community Banks trades at 0.9x forward P/B. To fully understand why you should be careful with UCB, check out our full research report (it’s free).
Two Bank Stocks to Watch:
Frost Bank (CFR)
Market Cap: $8.01 billion
Tracing its roots back to 1868 when it was founded during Texas's post-Civil War reconstruction era, Cullen/Frost Bankers (NYSE: CFR) operates Frost Bank, a Texas-based financial institution providing commercial and consumer banking, wealth management, and insurance services.
Why Is CFR Interesting?
- Impressive 13.8% annual net interest income growth over the last four years indicates it’s winning market share this cycle
- Net interest margin jumped by 55.3 basis points (100 basis points = 1 percentage point) over the last two years, giving the company more resources to pursue growth initiatives
- Annual tangible book value per share growth of 22.1% over the last two years was superb and indicates its capital strength increased during this cycle
Frost Bank’s stock price of $124.56 implies a valuation ratio of 1.9x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
Bank OZK (OZK)
Market Cap: $5.10 billion
Founded in 1903 and rebranded from Bank of the Ozarks in 2018, Bank OZK (NASDAQ: OZK) is a commercial bank that specializes in real estate lending while offering a full range of banking services to individuals and businesses.
Why Are We Positive On OZK?
- Impressive 13.8% annual net interest income growth over the last four years indicates it’s winning market share this cycle
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 11.2% annually
- Balance sheet strength has increased this cycle as its 10.1% annual tangible book value per share growth over the last five years was exceptional
Bank OZK is trading at $45.03 per share, or 0.9x forward P/B. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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