Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Furthermore, solid loan growth and fee income have helped banks maintain stability, a trend that has enabled the banking industry to hold steady with a flat return over the past six months while the S&P 500 shed 1.3%.

Although this could signal cash-like stability, investors must be mindful because fintech disruptors are rapidly taking market share from traditional banks. Taking that into account, here are three bank stocks that may face trouble.

TriCo Bancshares (TCBK)

Market Cap: $1.52 billion

Founded in 1975 and headquartered in Chico, California, TriCo Bancshares (NASDAQ: TCBK) operates Tri Counties Bank, providing personal, small business, and commercial banking services through branches across California.

Why Are We Cautious About TCBK?

1. Annual net interest income growth of 6.4% over the last five years was below our standards for the banking sector
2. Earnings per share lagged its peers over the last two years as they only grew by 2.4% annually
3. Estimated tangible book value per share growth of 9.1% for the next 12 months implies profitability will slow from its two-year trend

TriCo Bancshares’s stock price of $47.34 implies a valuation ratio of 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than TCBK.

Bank of Hawaii (BOH)

Market Cap: $2.93 billion

Founded in 1897 as a financial anchor for the newly annexed Hawaiian territory, Bank of Hawaii (NYSE: BOH) is a financial institution providing banking, investment, and insurance services primarily to customers in Hawaii, Guam, and other Pacific Islands.

Why Does BOH Worry Us?

1. Muted 1.4% annual revenue growth over the last five years shows its demand lagged behind its banking peers
2. Annual net interest income growth of 1.6% over the last five years was below our standards for the banking sector
3. Inferior net interest margin of 2.3% means it must compensate for lower profitability through increased loan originations

At $74.02 per share, Bank of Hawaii trades at 1.7x forward P/B. To fully understand why you should be careful with BOH, check out our full research report (it’s free).

PennyMac Mortgage Investment Trust (PMT)

Market Cap: $993.7 million

Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust (NYSE: PMT) is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.

Why Should You Sell PMT?

1. Sales tumbled by 23.1% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Loan losses and capital returns have eroded its tangible book value per share this cycle as its tangible book value per share declined by 5.4% annually over the last five years

PennyMac Mortgage Investment Trust is trading at $11.43 per share, or 0.7x forward P/B. Check out our free in-depth research report to learn more about why PMT doesn’t pass our bar.

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