Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. These institutions have benefited from improved net interest margins and robust credit growth, so it’s no surprise the banking industry has posted a 16.3% gain over the past six months, beating the S&P 500 by 11.2 percentage points.
Nevertheless, investors should tread carefully as many banks are cyclical due to their exposure to credit risk and regulatory changes. Keeping that in mind, here is one bank stock poised to generate sustainable market-beating returns and two best left ignored.
Two Bank Stocks to Sell:
Peoples Bancorp (PEBO)
Market Cap: $1.19 billion
Founded in 1902 in Ohio and expanding through both organic growth and acquisitions, Peoples Bancorp (NASDAQ: PEBO) is a financial holding company that provides banking, insurance, equipment leasing, and investment services to consumers and businesses.
Why Does PEBO Worry Us?
- Annual revenue growth of 3.5% over the last two years was below our standards for the banking sector
- Net interest margin shrank by 45.3 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
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 12.4% annually while its revenue grew
Peoples Bancorp’s stock price of $33.83 implies a valuation ratio of 1x forward P/B. Dive into our free research report to see why there are better opportunities than PEBO.
Washington Trust Bancorp (WASH)
Market Cap: $678 million
Founded in 1800 and operating as Rhode Island's oldest community bank, Washington Trust Bancorp (NASDAQ: WASH) is a regional bank holding company offering commercial banking, mortgage lending, personal banking, and wealth management services.
Why Should You Dump WASH?
- 3.7% annual net interest income growth over the last five years was slower than its banking peers
- Net interest margin of 2.2% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 7.8% annually
At $35.06 per share, Washington Trust Bancorp trades at 1.2x forward P/B. To fully understand why you should be careful with WASH, check out our full research report (it’s free).
One Bank Stock to Watch:
UMB Financial (UMBF)
Market Cap: $9.13 billion
With roots dating back to 1913 and a name derived from "United Missouri Bank," UMB Financial (NASDAQ: UMBF) is a financial holding company that provides banking, asset management, and fund services to commercial, institutional, and individual customers.
Why Do We Like UMBF?
- Annual net interest income growth of 24.7% over the last five years was superb and indicates its market share increased during this cycle
- Net interest margin increased by 55.4 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more capital to invest or return to shareholders
- Productivity and efficiency ratio profits are expected to increase next year as some fixed cost leverage kicks in
UMB Financial is trading at $119.89 per share, or 1.1x forward P/B. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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