Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. These institutions have benefited from improved net interest margins and robust credit growth, so it’s no surprise the banking industry has posted a 15.5% gain over the past six months, nearly mirroring 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. On that note, here are three bank stocks best left ignored.

Fulton Financial (FULT)

Market Cap: $3.54 billion

Tracing its roots back to 1882 in the heart of Pennsylvania, Fulton Financial (NASDAQ: FULT) is a financial holding company that provides banking, lending, and wealth management services to consumers and businesses across five Mid-Atlantic states.

Why Is FULT Not Exciting?

1. Estimated net interest income growth of 1.9% for the next 12 months implies demand will slow from its five-year trend
2. Anticipated 2.8 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
3. 4.3% annual tangible book value per share growth over the last five years was slower than its banking peers

Fulton Financial’s stock price of $19.43 implies a valuation ratio of 1.1x forward P/B. If you’re considering FULT for your portfolio, see our FREE research report to learn more.

First Merchants (FRME)

Market Cap: $2.36 billion

Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ: FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.

Why Does FRME Give Us Pause?

1. Annual sales declines of 1.8% for the past two years show its products and services struggled to connect with the market during this cycle
2. 7.1% annual net interest income growth over the last five years was slower than its banking peers
3. 27.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position

At $40.89 per share, First Merchants trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than FRME.

Banc of California (BANC)

Market Cap: $2.64 billion

Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE: BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.

Why Does BANC Fall Short?

1. Annual net interest income declines of 1.3% for the past five years show its loan book struggled during this cycle
2. Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 3.9% annually over the last five years
3. Negative return on equity shows management lost money while trying to expand the business

Banc of California is trading at $16.78 per share, or 0.9x forward P/B. If you’re considering BANC for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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