3 Bank Stocks Skating on Thin Ice

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 caused the industry to lag recently as banking stocks have collectively shed 10.1% over the past six months. This performance was disappointing since the S&P 500 stood firm.

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

WesBanco (WSBC)

Market Cap: $3.03 billion

Tracing its roots back to 1870 in West Virginia, WesBanco (NASDAQ:WSBC) is a bank holding company that provides retail and commercial banking, trust services, insurance, and investment products through its subsidiaries across several Midwestern and Mid-Atlantic states.

Why Are We Hesitant About WSBC?

1. 2.4% annual net interest income growth over the last four years was slower than its bank peers
2. Annual tangible book value per share declines of 1.4% for the past five years show its capital management struggled during this cycle
3. Low interest coverage ratio indicates the company may struggle to service its debt obligations if operational performance deteriorates

WesBanco’s stock price of $31.70 implies a valuation ratio of 0.8x forward P/B. If you’re considering WSBC for your portfolio, see our FREE research report to learn more.

Synovus Financial (SNV)

Market Cap: $6.81 billion

Tracing its roots back to 1888 when a worker accidentally dropped a textile mill payroll into the dust, prompting the need for better banking, Synovus Financial (NYSE:SNV) is a regional financial services company that provides commercial and consumer banking, wealth management, and specialized lending services across five southeastern states.

Why Does SNV Fall Short?

1. Annual net interest income growth of 4.2% over the last four years was below our standards for the bank sector
2. Inferior net interest margin of 3.2% means it must compensate for lower profitability through increased loan originations
3. Muted 2.9% annual tangible book value per share growth over the last five years shows its capital generation lagged behind its bank peers

Synovus Financial is trading at $48.97 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including SNV in your portfolio.

U.S. Bancorp (USB)

Market Cap: $68.86 billion

With roots dating back to 1863 and a presence across 26 states primarily in the Midwest and West, U.S. Bancorp (NYSE:USB) is one of America's largest banks providing lending, deposit services, wealth management, payment processing, and merchant services to individuals and businesses.

Why Do We Think Twice About USB?

1. Sizable revenue base leads to growth challenges as its 6.7% annual net interest income increases over the last four years fell short of other bank companies
2. Weak unit economics are reflected in its net interest margin of 2.8%, one of the worst among bank companies
3. Large asset base makes it harder to grow tangible book value quickly, and its annual tangible book value per share growth of 1.3% over the last five years was below our standards for the bank sector

At $44.50 per share, U.S. Bancorp trades at 1.2x forward P/B. To fully understand why you should be careful with USB, check out our full research report (it’s free).

Stocks We Like More

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