US bank valuations level off in October

US bank valuations flatlined in October as falling stock prices were offset by lower adjusted tangible book values from more severe fair value marks on securities portfolios.

For the 212 banks in the S&P Global Market Intelligence analysis, the median price to adjusted TBV ratio was 113.7% at Oct. 31, roughly equivalent to 113.6% at Sept. 29. The median total return in the analysis for October was negative 2.5%, outperforming the S&P US BMI Banks index's negative 3.8% but trailing the S&P 500's negative 2.1%.

S&P Global Market Intelligence analyzed US banks trading on the Nasdaq, NYSE or NYSE American with total assets of greater than $3 billion as of the most recent quarter. The analysis excludes banks with a negative held-to-maturity (HTM) and credit-adjusted TBV, banks in the mutual holding company ownership structure and other operating subsidiaries.

HTM and credit-adjusted TBV is calculated as the sum of tangible common equity; unrealized gain or loss from HTM securities, tax-adjusted at the 21% corporate rate; and loss reserves; less nonperforming assets and loans 90 or more days past due but still accruing interest; divided by common shares outstanding.

Least expensive banks

Seattle-based HomeStreet Inc. was the least expensive bank in the analysis for the seventh month in a row. The bank's stock plunged an analysis-worst 38.0% in October, which dropped its price to adjusted TBV to 19.1% from 28.9% at the end of September.

In the third quarter, HomeStreet's net interest margin shrunk to 1.73%, down 23 basis points from the second quarter and 132 basis points from the year-ago quarter. Only four of the 20 least expensive banks had margin expansion on a sequential basis, including Dallas-based First Foundation Inc. and Los Angeles-based Hope Bancorp Inc. with double-digit, basis-point increases.

On the market performance side, several of the lowest-valued banks — First Foundation (ranked No. 2); Fishers, Ind.-based First Internet Bancorp (No. 3); Bethesda, Md.-based Eagle Bancorp Inc. (No. 8); and Topeka, Kan.-based Capitol Federal Financial Inc. (No. 19) — experienced 9%+ one-day returns after releasing calendar third-quarter earnings. First Foundation and Eagle Bancorp ended October with a monthly market loss, while First Internet and Capitol Federal had returns of 1.0% and 9.0%, respectively.

Following a negative 10.5% return last month, PacWest Bancorp slotted in at the fourth-cheapest valuation: 45.8%. The Beverly Hills, Calif.-based bank had the largest increase in short interest in the sector during September. PacWest's reverse merger with Banc of California Inc. is expected to close around the end of November.

Last month, Los Angeles-based RBB Bancorp unit Royal Business Bank entered into a consent order with regulators. RBB Bancorp's price to adjusted TBV was 51.7% at Oct. 31, ranking No. 6 in the analysis.

In mid-October, New York-based Metropolitan Bank Holding Corp., the No. 13 bank, entered into two consent orders with regulators, which include total civil money penalties of $29.5 million.

Hope Bancorp, ranked No. 15, announced a strategic reorganization in its third-quarter earnings release. The bank projected that the plan could produce more than $40 million of annualized cost savings.

– Access S&P Global Market Intelligence's calculations for price to adjusted tangible book value as of Oct. 31. – Read some of the day's top news and insights from S&P Global Market Intelligence. – Set email alerts for future Data Dispatch articles.

Most expensive banks

For the first time since the methodology change in March, Honolulu-based Bank of Hawaii Corp. is the most expensive bank in the analysis by price to adjusted TBV. At Oct. 31, its valuation was 387.3%, up 85 percentage points from Sept. 29.

Bank of Hawaii's monthly return was just slightly negative, but its adjusted TBV took a beating from marks on held-to-maturity securities. The tax-adjusted impact on equity was negative $777.0 million at Sept. 30 compared to negative $625.4 million at June 30.

Another Honolulu-based bank on the most expensive list, No. 10 First Hawaiian Inc., also saw a huge change in its HTM marks during the quarter. Accounting for taxes, the HTM adjustment deteriorated to negative $530.2 million from negative $381.7 million.

On Oct. 1, Manitowoc, Wis.-based Bank First Corp., ranked as the 19th most expensive bank, completed the sale of its stake in bank technology provider UFS LLC. With a $39.3 million pretax gain, the bank's fourth-quarter adjusted TBV could show a material increase.