Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 6.5% gain has fallen behind the S&P 500’s 8.3% rise.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. On that note, here are three bank stocks we’re steering clear of.
First Financial Bankshares (FFIN)
Market Cap: $5.00 billion
With roots dating back to 1890 and a network spanning over 70 locations across the Lone Star State, First Financial Bankshares (NASDAQ: FFIN) is a Texas-focused regional bank providing commercial banking, trust services, and wealth management across numerous communities throughout the state.
Why Are We Hesitant About FFIN?
- Muted 5.7% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Annual net interest income growth of 8.1% over the last five years was below our standards for the banking sector
- Incremental sales over the last five years were less profitable as its 3.5% annual earnings per share growth lagged its revenue gains
At $35.14 per share, First Financial Bankshares trades at 2.4x forward P/B. To fully understand why you should be careful with FFIN, check out our full research report (it’s free).
WaFd Bank (WAFD)
Market Cap: $2.72 billion
Founded in 1917 and rebranded from Washington Federal in 2023, WaFd (NASDAQ: WAFD) is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.
Why Is WAFD Risky?
- 7.4% annual net interest income growth over the last five years was slower than its banking peers
- Net interest margin of 2.7% reflects its high servicing and capital costs
- Incremental sales over the last two years were less profitable as its earnings per share were flat while its revenue grew
WaFd Bank is trading at $36.70 per share, or 1x forward P/B. Check out our free in-depth research report to learn more about why WAFD doesn’t pass our bar.
Republic Bancorp (RBCAA)
Market Cap: $1.95 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?
- Net interest income trends were unexciting over the last five years as its 5.9% annual growth was below the typical banking firm
- Anticipated net interest income growth of 6.5% for the next year implies demand will be shaky
- Projected tangible book value per share growth of 8.4% for the next 12 months suggests sluggish capital generation
Republic Bancorp’s stock price of $99.54 implies a valuation ratio of 1.6x forward P/B. Dive into our free research report to see why there are better opportunities than RBCAA.
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