Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 5.4% return has trailed the S&P 500 by 6.3 percentage points.
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 best left ignored.
United Community Banks (UCB)
Market Cap: $4.32 billion
Starting as a small community bank in 1950 and expanding through strategic acquisitions across the Southeast, United Community Banks (NYSE: UCB) is a regional bank holding company that provides financial services including loans, deposits, wealth management, and merchant services across the southeastern United States.
Why Are We Hesitant About UCB?
- Muted 8% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Estimated net interest income growth of 1.5% for the next 12 months implies demand will slow from its five-year trend
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
United Community Banks’s stock price of $36.07 implies a valuation ratio of 1.1x forward P/B. Check out our free in-depth research report to learn more about why UCB doesn’t pass our bar.
NBT Bancorp (NBTB)
Market Cap: $2.77 billion
Tracing its roots back to 1856 when it first opened its doors in Norwich, New York, NBT Bancorp (NASDAQ: NBTB) is a community-oriented financial institution providing banking, wealth management, and insurance services to individuals and businesses across the northeastern United States.
Why Does NBTB Fall Short?
- Annual revenue growth of 9.7% over the last five years was below our standards for the banking sector
- Estimated net interest income growth of 5.8% for the next 12 months implies demand will slow from its five-year trend
- Performance over the past five years shows its incremental sales were less profitable, as its 3% annual earnings per share growth trailed its revenue gains
At $53.23 per share, NBT Bancorp trades at 1.4x forward P/B. To fully understand why you should be careful with NBTB, check out our full research report (it’s free).
First Citizens BancShares (FCNCA)
Market Cap: $25 billion
With roots dating back to 1898 and a significant expansion through its 2023 acquisition of Silicon Valley Bank, First Citizens BancShares (NASDAQGS:FCNC.A) is a bank holding company that provides financial services to individuals and businesses through its First-Citizens Bank & Trust Company subsidiary.
Why Are We Cautious About FCNCA?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.9% annually over the last two years
- 63.1 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
- Earnings per share have dipped by 2.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
First Citizens BancShares is trading at $2,227 per share, or 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than FCNCA.
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