Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have caused the industry to lag recently as banking stocks have collectively shed 6.9% over the past six months. This drawdown was disheartening since the S&P 500 held steady.

A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. With that said, here are three bank stocks we’re passing on.

KeyCorp (KEY)

Market Cap: $17.71 billion

Tracing its roots back to 1849 during the California Gold Rush era, KeyCorp (NYSE: KEY) operates KeyBank, a full-service regional bank providing retail and commercial banking, wealth management, and investment services across 15 states.

Why Are We Wary of KEY?

1. Net interest income stagnated over the last four years and signal the need for new growth strategies
2. Overall productivity fell over the last four years as its plummeting sales were accompanied by a degrading efficiency ratio
3. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable

KeyCorp is trading at $16.15 per share, or 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than KEY.

First Financial Bancorp (FFBC)

Market Cap: $2.22 billion

Tracing its roots back to 1863 during the Civil War era, First Financial Bancorp (NASDAQ: FFBC) is a bank holding company that provides commercial banking, lending, deposit services, and wealth management to individuals and businesses.

Why Are We Cautious About FFBC?

1. Muted 4% annual revenue growth over the last two years shows its demand lagged behind its bank peers
2. Estimated net interest income growth of 1.2% for the next 12 months implies demand will slow from its four-year trend
3. Annual tangible book value per share growth of 4.7% over the last five years was below our standards for the bank sector

At $23.15 per share, First Financial Bancorp trades at 0.8x forward P/B. To fully understand why you should be careful with FFBC, check out our full research report (it’s free).

Columbia Financial (CLBK)

Market Cap: $1.46 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 Do We Avoid CLBK?

1. Net interest income tumbled by 4.9% annually over the last four years, showing market trends are working against its favor during this cycle
2. Concessions to defend its market share have ramped up over the last two years as its net interest margin decreased by 94.7 basis points (100 basis points = 1 percentage point)
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Columbia Financial’s stock price of $13.90 implies a valuation ratio of 1.3x forward P/B. Read our free research report to see why you should think twice about including CLBK in your portfolio.

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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