Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. 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 6.4% return has trailed the S&P 500 by 4.4 percentage points.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. With that said, here are three bank stocks that may face trouble.
United Community Banks (UCB)
Market Cap: $3.92 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 Does UCB Give Us Pause?
- Muted 4.1% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Earnings per share lagged its peers over the last two years as they only grew by 6.2% annually
- Projected tangible book value per share growth of 9.3% for the next 12 months suggests sluggish capital generation
United Community Banks is trading at $31.51 per share, or 1.1x forward P/B. To fully understand why you should be careful with UCB, check out our full research report (it’s free for active Edge members).
Seacoast Banking (SBCF)
Market Cap: $3.15 billion
Founded during the Florida land boom of 1926 and surviving the Great Depression, Seacoast Banking Corporation of Florida (NASDAQ: SBCF) is a financial holding company that provides commercial and retail banking, wealth management, and mortgage services throughout Florida.
Why Should You Sell SBCF?
- Muted 1.5% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 1.5% annually
- Projected tangible book value per share decline of 1.8% for the next 12 months points to tough credit quality challenges ahead
Seacoast Banking’s stock price of $32.54 implies a valuation ratio of 1.2x forward P/B. Read our free research report to see why you should think twice about including SBCF in your portfolio.
City Holding (CHCO)
Market Cap: $1.75 billion
With roots dating back to 1957 and a strategic presence along the I-64 and I-81 corridors, City Holding (NASDAQGS:CHCO) operates as a financial holding company providing banking, trust, and investment services through its subsidiary City National Bank across West Virginia, Kentucky, Virginia, and Ohio.
Why Does CHCO Fall Short?
- Annual net interest income growth of 8.2% over the last five years was below our standards for the banking sector
- Estimated net interest income growth of 5% for the next 12 months implies demand will slow from its five-year trend
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.9% annually
At $121.45 per share, City Holding trades at 2.2x forward P/B. Dive into our free research report to see why there are better opportunities than CHCO.
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