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 caused the industry to lag recently as banking stocks have collectively shed 2.9% over the past six months. This drop was disappointing 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. Taking that into account, here are three bank stocks best left ignored.
Western Alliance Bancorporation (WAL)
Market Cap: $7.27 billion
Operating through five distinct regional banking divisions across the western United States, Western Alliance Bancorporation (NYSE: WAL) provides commercial banking, treasury management, mortgage services, and specialized financial solutions through its banking divisions and subsidiaries.
Why Does WAL Worry Us?
- Estimated net interest income decline of 2.5% for the next 12 months implies a challenging demand environment
- Net interest margin shrank by 11.7 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 13.5 percentage points
Western Alliance Bancorporation’s stock price of $67.45 implies a valuation ratio of 0.9x forward P/B. If you’re considering WAL for your portfolio, see our FREE research report to learn more.
Customers Bancorp (CUBI)
Market Cap: $2.27 billion
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE: CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Does CUBI Give Us Pause?
- 6.8% annual revenue growth over the last two years was slower than its banking peers
- Inferior net interest margin of 3.2% means it must compensate for lower profitability through increased loan originations
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
At $66.21 per share, Customers Bancorp trades at 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than CUBI.
Franklin BSP Realty Trust (FBRT)
Market Cap: $714.9 million
Operating as a specialized real estate investment trust (REIT) with roots dating back to 2012, Franklin BSP Realty Trust (NYSE: FBRT) originates and manages a diversified portfolio of commercial real estate debt investments secured by properties in the United States and abroad.
Why Do We Steer Clear of FBRT?
- 6.1% annual net interest income growth over the last five years was slower than its banking peers
- Estimated net interest income decline of 5.7% for the next 12 months implies a challenging demand environment
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Franklin BSP Realty Trust is trading at $9.05 per share, or 0.6x forward P/B. To fully understand why you should be careful with FBRT, check out our full research report (it’s free).
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