Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 10.6% over the past six months, almost identical to the S&P 500.
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. With that said, here are two bank stocks we think can generate sustainable market-beating returns and one we’re steering clear of.
One Bank Stock to Sell:
Byline Bancorp (BY)
Market Cap: $1.70 billion
Ranking as the fifth most active Small Business Administration lender in the country, Byline Bancorp (NYSE: BY) is a Chicago-based bank that provides banking services to small and medium-sized businesses, commercial real estate developers, and consumers.
Why Are We Wary of BY?
- Sales trends were unexciting over the last two years as its 7.1% annual growth was below the typical banking company
- Estimated net interest income growth of 3% for the next 12 months implies demand will slow from its five-year trend
- Performance over the past two years shows its incremental sales were less profitable, as its 4.6% annual earnings per share growth trailed its revenue gains
At $37.37 per share, Byline Bancorp trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including BY in your portfolio.
Two Bank Stocks to Watch:
Axos Financial (AX)
Market Cap: $5.53 billion
Originally founded as Bank of Internet USA in 1999 before rebranding in 2018, Axos Financial (NYSE: AX) is a diversified financial services company that provides digital banking, securities clearing, and investment advisory solutions to retail and business customers nationwide.
Why Should You Buy AX?
- Annual net interest income growth of 18.6% over the past five years was outstanding, reflecting market share gains this cycle
- Differentiated product suite is reflected in its best-in-class net interest margin of 4.8%
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 18.1% annually
Axos Financial’s stock price of $97.18 implies a valuation ratio of 1.7x forward P/B. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Old Second Bancorp (OSBC)
Market Cap: $1.19 billion
Dating back to 1871 as one of the Chicago area's longest-standing financial institutions, Old Second Bancorp (NASDAQ: OSBC) is an Illinois-based community bank offering deposit services, commercial and consumer loans, wealth management, and mortgage products through its 53 branch locations.
Why Does OSBC Stand Out?
- Impressive 21.5% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Annual net interest income growth of 27.4% over the last five years was superb and indicates its market share increased during this cycle
- Differentiated product suite results in a best-in-class net interest margin of 4.9%
Old Second Bancorp is trading at $23.06 per share, or 1.2x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
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