Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 14.1% over the past six months. At the same time, the S&P 500 was up 3.5%.

Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. Taking that into account, here are three bank stocks we’re swiping left on.

Provident Financial Services (PFS)

Market Cap: $2.94 billion

Founded in 1839 and serving communities across New Jersey, Pennsylvania, and New York, Provident Financial Services (NYSE: PFS) operates a regional bank providing commercial, residential, and consumer lending alongside wealth management and insurance services.

Why Does PFS Fall Short?

1. Estimated net interest income decline of 7.4% for the next 12 months implies a challenging demand environment
2. Net interest margin of 3.3% is well below other banks, signaling its loans aren’t very profitable
3. Tangible book value per share tumbled by 2.1% annually over the last two years, showing banking sector trends are working against its favor during this cycle

At $22.49 per share, Provident Financial Services trades at 1x forward P/B. To fully understand why you should be careful with PFS, check out our full research report (it’s free).

Hope Bancorp (HOPE)

Market Cap: $1.58 billion

With roots in serving Korean-American communities and now expanded to a multi-ethnic clientele across 12 states, Hope Bancorp (NASDAQ: HOPE) operates Bank of Hope, providing commercial and retail banking services with a focus on serving multi-ethnic communities across the United States.

Why Do We Steer Clear of HOPE?

1. Flat net interest income over the last five years suggest it must find different ways to grow during this cycle
2. Flat earnings per share over the last five years underperformed the sector average
3. Products and services are facing profitability challenges during this cycle, as seen in its flat tangible book value per share over the last two years

Hope Bancorp’s stock price of $12.37 implies a valuation ratio of 0.7x forward P/B. Read our free research report to see why you should think twice about including HOPE in your portfolio.

Citigroup (C)

Market Cap: $214.1 billion

With operations in nearly 160 countries and a history dating back to 1812, Citigroup (NYSE: C) is a global financial services company that provides banking, investment, wealth management, and payment solutions to consumers, corporations, and governments.

Why Is C Not Exciting?

1. Large revenue base makes it harder to expand quickly, and its annual net interest income growth of 6% over the last five years was below our standards for the banking sector
2. Scale is a double-edged sword because it limits the firm’s capital growth potential compared to its smaller competitors, as reflected in its below-average annual tangible book value per share increases of 6.1% for the last two years
3. Estimated tangible book value per share growth of 8% for the next 12 months is soft and implies weaker profitability

Citigroup is trading at $124.95 per share, or 1x forward P/B. Check out our free in-depth research report to learn more about why C doesn’t pass our bar.

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