StockStory Highlights Two Bank Stocks Amid Sector Underperformance

StockStory has identified First Merchants and The Bancorp as resilient options within the banking sector, while noting East West Bancorp as a separate entity of interest. The publication states that banking stocks have collectively shed 3% over the past six months, a performance that lags significantly behind the S&P 500's 12% ascent during the same period. This underperformance is attributed to investor unease regarding credit quality concerns and potential regulatory changes affecting the industry.

First Merchants, a Midwest regional bank operating in Indiana, Ohio, Michigan, and Illinois, has a market cap of $2.45 billion. The company, which dates back to 1893, provides commercial, consumer, and wealth management services. StockStory points to unexciting sales trends over the last two years, citing annual growth of 6.4%, which fell below the typical banking company benchmark. Net interest income growth was muted at 7.8% annually over the last five years, indicating demand lagged behind peers. Furthermore, annual earnings per share growth of 1.7% over the same five-year period underperformed revenue growth, suggesting incremental sales were less profitable. The stock trades at $39.07, implying a valuation ratio of 0.9x forward P/B.

In contrast, The Bancorp is viewed more positively by the publication. With a market cap of $2.03 billion, this bank holding company specializes in providing services to fintech companies and offering specialty lending products. Annual revenue growth of 18% over the past two years is described as outstanding, reflecting market share gains. An anticipated efficiency ratio improvement of 6.7 percentage points over the next year is expected to allow the company to gain leverage on fixed costs. Share buybacks have boosted annual earnings per share growth to 25% over the last five years, outperforming revenue gains. The Bancorp shares trade at $49.85, or 2.7x forward P/B.

East West Bancorp, the largest independent bank in the U.S. focused on U.S.-Asia cross-border transactions, holds a market cap of $17.13 billion. StockStory highlights that its annual net interest income growth of 13.9% over the last five years beat the sector average. Annual tangible book value per share growth was 12.3% over the past five years, reflecting strong capital accumulation. The bank's return on equity stands at 17.1%. Shares trade at $125.50 per share, representing a 1.8x forward P/B valuation.