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 15.6% gain over the past six months, beating the S&P 500 by 6 percentage points.

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. Taking that into account, here is one bank stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Market Cap: $2.97 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 Worry Us?

Weak unit economics are reflected in its net interest margin of 3.3%, one of the worst among bank companies

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

Capital generation will likely be soft over the next 12 months as Wall Street’s estimates imply tepid tangible book value per share growth of 10.1%

Provident Financial Services is trading at $22.71 per share, or 1x forward P/B. To fully understand why you should be careful with PFS, check out our full research report (it’s free).

Market Cap: $3.00 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 Are We Cautious About BOH?

Muted 1.4% annual revenue growth over the last five years shows its demand lagged behind its banking peers

Annual net interest income growth of 1.6% over the last five years was below our standards for the banking sector

Net interest margin of 2.3% reflects its high servicing and capital costs

At $75.45 per share, Bank of Hawaii trades at 1.8x forward P/B. If you’re considering BOH for your portfolio, see our FREE research report to learn more.

Market Cap: $2.02 billion

Founded in 1904 in Louisville and named after the city's historic livestock market district, Stock Yards Bancorp (NASDAQ:SYBT) operates a regional bank providing commercial banking, wealth management, and trust services across Kentucky, Indiana, and Ohio.

Why Do We Watch SYBT?

Annual net interest income growth of 17.1% over the last five years was superb and indicates its market share increased during this cycle

Forecasted net interest income growth of 12.1% for the next 12 months indicates its momentum over the last five years is sustainable

Balance sheet strength has increased this cycle as its 18.5% annual tangible book value per share growth over the last two years was exceptional

Stock Yards Bank’s stock price of $68.60 implies a valuation ratio of 1.9x forward P/B. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

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