3 Top Bank Stocks to Buy in September

It seems as though everything is finally moving in the right direction for the banking industry. Tax cuts are giving a big boost to bank earnings year over year. Loan losses are low, thanks to a combination of low unemployment and high nominal gross domestic product growth, which ticked up to 7% in the most recent quarter.

Though these positive developments bode well for all banks, entrepreneurial investors can do even better by selecting from the best of the bunch. Below, three Motley Fool contributors lay out their favorite bank stocks to buy in September, identifying BofI Holding (NASDAQ: BOFI), JPMorgan Chase (NYSE: JPM), and First Republic Bank (NYSE: FRC) as top picks to buy now.

Buy the dip in this fast-growing institution

Matthew Frankel, CFP (BofI Holding): After an impressive climb beginning in late 2017, online bank holding company BofI Holding has cooled off a bit recently, with shares down nearly 20% from their June high.

The main culprit for the drop was the bank's second-quarter earnings, which were a bit disappointing to investors.

However, it's important to realize that BofI's business is doing tremendously well. Assets grew by 12% over the past year, not including the $3 billion in deposits the bank is acquiring from Nationwide Bank (which will reduce its funding costs). Deposits are up by 16% and earnings are up by 14%.

And the bank's profitability metrics still look great even as it gets a bit larger. The bank is in the 95th percentile for return on equity (ROE) and has a remarkable 33% efficiency ratio while most brick-and-mortar banks are content if they're under 60%.

Speaking of getting larger, BofI still has tons of room to grow. Although it has grown tremendously in recent years to about $9.5 billion in assets, this is still quite small in banking terms. For context, BofI is just smaller than banks such as NBT Bank and Capitol Federal Savings Bank (if you don't know who they are, well, that's the point). In other words, BofI has done a great job of growing, but there's no reason to think it can't get several times larger.

Betting on brokerage

Dan Caplinger (JPMorgan Chase): I've written about JPMorgan Chase before, as the banking giant has had a lot going for it lately. Between the positive impact of rising rates on its banking operations, the benefits that soaring financial markets bring to its trading results, and the continued strong performance that's allowed it to return more capital to shareholders, JPMorgan has been pushing all the right buttons for investors lately.

But the reason I'm excited about JPMorgan right now has to do with its most recent strategy to broaden its customer base. The new You Invest service promises to put the banking giant in the middle of the conversation in the retail brokerage industry, with an online- and mobile-based service that offers 100 commission-free trades, $2.95 commissions after that, and no account minimums. Initially, You Invest will offer only self-service investment options, but JPMorgan plans to add managed portfolios early next year.

Traditional brokerage companies shuddered at the news, validating the impact that JPMorgan's entry into the space could have on the traditional commission-based model. For investors, JPMorgan's move will be positive even for those who choose not to go with You Invest, as the competitive response will extend the trend toward lower-cost investing in a way that should benefit customers across brokerage platforms.

Bank of the wealthy

Jordan Wathen (First Republic Bank): This bank isn't shy about being the bank for the few. The bank has its sights set on high-net-worth (HNW) households, people who expect more hands-on customer service and attention due to their high account balances and above-average financial means.

The bank operates in large, world-class American cities, deriving the bulk of its business in San Francisco (Silicon Valley), Los Angeles, and New York, places where millionaire households are found in greater concentrations.

The financial stability of its core clients shows up in its financial statements. It's notable that even at the depths of the financial crisis, First Republic charged off less than 0.50% of loans on a net basis. In the first half of 2018, its net charge-off ratio rounded to 0.00%, an accomplishment few banks can match. A high-quality portfolio of boring, low-LTV mortgages does much of the heavy lifting in the credit quality department.

First Republic has a long history of double-digit growth in deposits and loans, driven by organic growth rather than acquisition. And having only scratched the surface -- the bank believes it has only captured about 4% of HNW households in markets where it operates -- there is still plenty of room to grow.

Shares of this bank rarely trade cheaply. At about 22 times consensus earnings estimates for 2018, it's no obvious bargain. But with a clear runway for double-digit growth in loans and deposits for as far as the eye can see, this is a bank stock worthy of a premium.

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Dan Caplinger has no position in any of the stocks mentioned. Jordan Wathen has no position in any of the stocks mentioned. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends BofI Holding. The Motley Fool has a disclosure policy.