Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. These institutions have benefited from improved net interest margins and robust credit growth, so it’s no surprise the banking industry has posted a 3.1% gain over the past six months while the S&P 500 shed 2.1% of its value.

Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. On that note, here are three bank stocks we’re passing on.

TowneBank (TOWN)

Market Cap: $3.09 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 Are We Wary of TOWN?

1. Muted 5.1% annual revenue growth over the last five years shows its demand lagged behind its banking peers
2. Net interest income trends were unexciting over the last five years as its 9.9% annual growth was below the typical banking firm
3. Estimated tangible book value per share growth of 2% for the next 12 months implies profitability will slow from its two-year trend

At $33.90 per share, TowneBank trades at 1.1x forward P/B. To fully understand why you should be careful with TOWN, check out our full research report (it’s free).

BancFirst (BANF)

Market Cap: $3.66 billion

Operating as a "super community bank" with a decentralized management approach that emphasizes local responsiveness, BancFirst Corporation (NASDAQ: BANF) operates as a financial holding company providing commercial banking services to retail customers and small to medium-sized businesses primarily in Oklahoma and Texas.

Why Are We Hesitant About BANF?

1. Annual net interest income growth of 9.8% over the last five years was below our standards for the banking sector
2. Anticipated 2.1 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6% annually

BancFirst is trading at $108.90 per share, or 1.8x forward P/B. Check out our free in-depth research report to learn more about why BANF doesn’t pass our bar.

Columbia Financial (CLBK)

Market Cap: $1.84 billion

Founded during the Roaring Twenties in 1926 and headquartered in Fair Lawn, New Jersey, Columbia Financial (NASDAQ: CLBK) operates federally chartered savings banks in New Jersey that offer traditional banking services including loans, deposits, and insurance products.

Why Should You Dump CLBK?

1. Net interest income stagnated over the last five years and signal the need for new growth strategies
2. Weak unit economics are reflected in its net interest margin of 2.1%, one of the worst among bank companies
3. Earnings per share fell by 1.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

Columbia Financial’s stock price of $17.67 implies a valuation ratio of 1.4x forward P/B. If you’re considering CLBK for your portfolio, see our FREE research report to learn more.

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