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 11.3% gain over the past six months, beating the S&P 500 by 6.3 percentage points.
Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. Keeping that in mind, here are three bank stocks we’re passing on.
Old National Bank (ONB)
Market Cap: $9.27 billion
Tracing its roots back to 1834 when Andrew Jackson was president, Old National Bancorp (NASDAQ: ONB) is a bank holding company that provides commercial and consumer loans, deposit services, wealth management, and treasury solutions primarily throughout the Midwest region.
Why Does ONB Give Us Pause?
- Net interest margin of 3.5% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows its incremental sales were less profitable, as its 5.8% annual earnings per share growth trailed its revenue gains
- 4% annual tangible book value per share growth over the last five years was slower than its banking peers
Old National Bank is trading at $23.96 per share, or 1x forward P/B. Dive into our free research report to see why there are better opportunities than ONB.
NBT Bancorp (NBTB)
Market Cap: $2.36 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 Worry Us?
- Sales trends were unexciting over the last five years as its 9.3% annual growth was below the typical banking company
- Estimated net interest income growth of 6.7% 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 4.8% annual earnings per share growth trailed its revenue gains
NBT Bancorp’s stock price of $43.27 implies a valuation ratio of 1.1x forward P/B. Read our free research report to see why you should think twice about including NBTB in your portfolio.
Arbor Realty Trust (ABR)
Market Cap: $1.50 billion
With roots dating back to 2003 and a focus on the stability of multifamily housing, Arbor Realty Trust (NYSE: ABR) is a specialized lender that provides financing solutions for multifamily and commercial real estate while also originating and servicing government-backed mortgage loans.
Why Should You Dump ABR?
- Net interest income trends were unexciting over the last five years as its 6% annual growth was below the typical banking firm
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Annual tangible book value per share declines of 5.1% for the past two years show its capital management struggled during this cycle
At $7.81 per share, Arbor Realty Trust trades at 0.8x forward P/B. To fully understand why you should be careful with ABR, check out our full research report (it’s free).
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