3 Bank Stocks We Think Twice About

Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. 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 8.4% gain has fallen behind the S&P 500’s 11.5% rise.

While some banks have strong balance sheets and diversified revenue streams that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three bank stocks we’re steering clear of.

S&T Bancorp (STBA)

Market Cap: $1.53 billion

Tracing its roots back to 1902 in western Pennsylvania's industrial heartland, S&T Bancorp (NASDAQ:STBA) is a Pennsylvania-based bank holding company that provides retail and commercial banking services, cash management, trust services, and investment advisory solutions.

Why Are We Wary of STBA?

1. 4.6% annual net interest income growth over the last five years was slower than its banking peers
2. Net interest margin dropped by 33.7 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. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 4.6% annually, worse than its revenue

S&T Bancorp is trading at $39.97 per share, or 1x forward P/B. To fully understand why you should be careful with STBA, check out our full research report (it’s free).

F.N.B. Corporation (FNB)

Market Cap: $6.16 billion

Tracing its roots back to 1864 during the Civil War era, F.N.B. Corporation (NYSE:FNB) is a diversified financial services holding company that provides banking, wealth management, and insurance services to consumers and businesses across seven states and Washington, D.C.

Why Are We Cautious About FNB?

1. Sales trends were unexciting over the last two years as its 1.9% annual growth was below the typical banking company
2. Muted 8.1% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
3. Incremental sales over the last two years were much less profitable as its earnings per share fell by 5% annually while its revenue grew

F.N.B. Corporation’s stock price of $17.20 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why FNB doesn’t pass our bar.

Walker & Dunlop (WD)

Market Cap: $2.20 billion

Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE:WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.

Why Does WD Give Us Pause?

1. Loans are facing significant end-market challenges during this cycle as net interest income has declined by 43.8% annually over the last five years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.7% annually
3. Tangible book value per share tumbled by 4.4% annually over the last five years, showing banking sector trends are working against its favor during this cycle

At $64.55 per share, Walker & Dunlop trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including WD in your portfolio.

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