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Lloyds‘ (LSE:LLOY) shares have enjoyed a strong run. Earnings have recovered, dividends are flowing, and investors have rewarded the bank for its operational discipline and exposure to a stabilising UK economy. My weighted position is up over 150%.
But success has its price. Lloyds is simply no longer the bargain stock it was. It trades at 12.8 times forward earnings with that figure falling to 9.9 times in 2026. Growth’s strong, but that’s unlikely to continue throughout the medium term.
The dividend yield now sits at 3.8% with strong coverage. However, that’s down from near 6%. To be clear, none of this screams overvalued to me. I just don’t see much room for near-term appreciation from here.
For investors willing to look beyond the FTSE 100, two lesser-known banks could offer more compelling risk/reward profiles heading into 2026.
Georgian lender, listed in London
TBC Group‘s (LSE:TBCG) one such candidate. The Georgian lender, which also operates a fast-growing subsidiary in Uzbekistan, has lagged its closest peer Lion Finance. At present, TBC trades at just 5.1 times forward earnings. That’s a substantial discount not only to UK banks but also to Lion Finance.
Crucially, this low valuation’s not a reflection of poor growth prospects. Forecasts suggest revenue growth averaging around 17.5% over the next two years, placing TBC among the fastest-growing companies in the FTSE All Share — number 17 to be precise.
Earnings growth’s expected to average roughly 11% annually, giving the shares a forward PEG ratio close to 0.45. That’s meaningfully lower than Lloyds on most measures.
The dividend also strengthens the case. The stock offers a forward yield of around 6%, supported by a strong coverage ratio.
Risks remain — notably regulatory changes in Uzbekistan and political uncertainty in Georgia — but recent underperformance appears more like a temporary speed bump than a structural problem.
A bank for the wealthy
Another interesting option is Arbuthnot Banking Group (LSE:ARBB). Unlike the big UK banks, this AIM-listed lender has seen little share price appreciation in recent years, even as dividends have risen steadily. The forward yield now exceeds 6%, with dividend cover forecast at just over two times.
Arbuthnot also looks cheap on balance sheet metrics. The shares trade at around eight times forward earnings and just 0.52 times book value, far below FTSE 100 peers.
Its conservative loan-to-deposit ratio of 57.6% provides a substantial liquidity buffer, reducing financial risk during economic downturns.
The main drawbacks are size and liquidity. The difference between the buying and selling price can deter investors from smaller banks.
Lloyds remains a solid business and still worthy of consideration. But on valuation, growth, and income potential combined, these two smaller banks could outperform by 2026.
And because of that, I believe they’re certainly worth considering as we move through 2026.
