Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. But concerns about loan losses and tightening regulations have tempered enthusiasm, limiting the banking industry’s gains to 7.5% over the past six months. This return lagged the S&P 500’s 10% climb.
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.
KeyCorp (KEY)
Market Cap: $23.38 billion
Tracing its roots back to 1849 during the California Gold Rush era, KeyCorp (NYSE:KEY) operates KeyBank, a full-service regional bank providing retail and commercial banking, wealth management, and investment services across 15 states.
Why Is KEY Not Exciting?
- 3.4% annual net interest income growth over the last five years was slower than its banking peers
- Net interest margin of 2.6% reflects its high servicing and capital costs
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.5% annually while its revenue grew
KeyCorp is trading at $21.57 per share, or 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than KEY.
BancFirst (BANF)
Market Cap: $3.74 billion
Operating as a “super community bank” with a decentralized management approach that emphasizes local responsiveness, BancFirst Corporation (NASDAQ:BANF) operates as a financial holding company providing commercial banking services to retail customers and small to medium-sized businesses primarily in Oklahoma and Texas.
Why Are We Hesitant About BANF?
- 7.8% annual revenue growth over the last two years was slower than its banking peers
- Estimated net interest income growth of 4.7% for the next 12 months implies demand will slow from its five-year trend
- Efficiency ratio is expected to worsen by 2 percentage points over the next year
BancFirst’s stock price of $111.31 implies a valuation ratio of 1.8x forward P/B. If you’re considering BANF for your portfolio, see our FREE research report to learn more.
PNC Financial Services Group (PNC)
Market Cap: $88.04 billion
Tracing its roots back to 1852 when Pittsburgh’s industrial boom demanded stronger financial institutions, PNC (NYSE:PNC) is a diversified financial institution that provides retail banking, corporate banking, and asset management services through a coast-to-coast branch network.
Why Do We Think Twice About PNC?
- Annual net interest income growth of 8.8% over the last five years lagged behind its banking peers as its large revenue base made it difficult to generate incremental demand
- Inferior net interest margin of 2.8% means it must compensate for lower profitability through increased loan originations
- Sizable asset base leads to capital growth challenges as its 2.8% annual tangible book value per share increases over the last five years fell short of other banking companies
At $217.35 per share, PNC Financial Services Group trades at 1.4x forward P/B. Read our free research report to see why you should think twice about including PNC in your portfolio.
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