3 Bank Stocks We Think Twice About

Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 10.6% gain for the banking industry over the past six months. This performance has closely followed the S&P 500.

Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. Keeping that in mind, here are three bank stocks best left ignored.

First Merchants (FRME)

Market Cap: $2.73 billion

Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ:FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.

Why Is FRME Not Exciting?

1. Annual revenue growth of 3.7% over the last two years was below our standards for the banking sector
2. 7.5% annual net interest income growth over the last five years was slower than its banking peers
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4% annually

First Merchants is trading at $43.33 per share, or 1x forward P/B. To fully understand why you should be careful with FRME, check out our full research report (it’s free).

Frost Bank (CFR)

Market Cap: $9.92 billion

Tracing its roots back to 1868 when it was founded during Texas's post-Civil War reconstruction era, Cullen/Frost Bankers (NYSE:CFR) operates Frost Bank, a Texas-based financial institution providing commercial and consumer banking, wealth management, and insurance services.

Why Are We Wary of CFR?

1. 7% annual revenue growth over the last two years was slower than its banking peers
2. Earnings per share lagged its peers over the last two years as they only grew by 7.5% annually
3. Estimated tangible book value per share decline of 7.9% for the next 12 months implies a challenging profitability environment

At $157.88 per share, Frost Bank trades at 2.1x forward P/B. Check out our free in-depth research report to learn more about why CFR doesn’t pass our bar.

BancFirst (BANF)

Market Cap: $3.86 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?

1. 7.8% annual revenue growth over the last two years was slower than its banking peers
2. Projected 1.9 percentage point efficiency ratio increase over the next year signals its day-to-day expenses will rise
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.2% annually

BancFirst’s stock price of $114.56 implies a valuation ratio of 1.9x forward P/B. Dive into our free research report to see why there are better opportunities than BANF.

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