Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 11.3% gain has fallen behind the S&P 500’s 18.3% rise.

A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. Taking that into account, here are three bank stocks best left ignored.

Lake City Bank (LKFN)

Market Cap: $1.68 billion

Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ: LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.

Why Does LKFN Worry Us?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. 6.6% annual net interest income growth over the last five years was slower than its banking peers
3. Muted 2.5% annual tangible book value per share growth over the last five years shows its capital generation lagged behind its banking peers

Lake City Bank is trading at $65.77 per share, or 2.3x forward P/B. Dive into our free research report to see why there are better opportunities than LKFN.

Flagstar Financial (FLG)

Market Cap: $4.81 billion

Tracing its roots back to 1859 and rebranded from New York Community Bancorp in 2024, Flagstar Financial (NYSE: FLG) is a bank holding company that offers commercial and consumer banking services, with specialties in multi-family lending, mortgage originations, and warehouse lending.

Why Should You Sell FLG?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 9.3% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 21% annually
3. Tangible book value per share tumbled by 6.7% annually over the last five years, showing banking sector trends are working against its favor during this cycle

Flagstar Financial’s stock price of $11.60 implies a valuation ratio of 0.7x forward P/B. To fully understand why you should be careful with FLG, check out our full research report (it’s free).

Citigroup (C)

Market Cap: $190.4 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 Does C Give Us Pause?

1. Annual net interest income growth of 5.3% over the last five years lagged behind its banking peers as its large revenue base made it difficult to generate incremental demand
2. Estimated net interest income growth of 1.2% for the next 12 months implies demand will slow from its five-year trend
3. Net interest margin of 2.4% is well below other banks, signaling its loans aren’t very profitable

At $103.51 per share, Citigroup trades at 0.9x 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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