Investors dump US bank stocks in August

After rallying in July, US bank stocks gave back much of those gains in August.

The median total return last month for the 211 US banks in the S&P Global Market Intelligence analysis was negative 7.9%. In comparison, the S&P US BMI Banks index fell 8.7% and the S&P 500 declined 1.6%.

Only five of the 211 banks recorded a positive total return. Summit Financial Group Inc. led with 9.0% appreciation after the Moorefield, W.Va.-based bank announced a merger of equals with Alexandria, Va.-based Burke & Herbert Financial Services Corp. on Aug. 24.

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

HTM and credit-adjusted tangible book value 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

Even with a 3.7% return in August, Seattle-based HomeStreet Inc. was the cheapest bank in the analysis by price to adjusted tangible book value for the fifth consecutive month. Its valuation was 35.1% at Aug. 31, up from 32.8% at July 31. HomeStreet is exploring strategic alternatives, and an activist investor recommends the sale of the company's Fannie Mae delegated underwriting and servicing license.

Beverly Hills, Calif.-based PacWest Bancorp, which announced a reverse merger with Santa Ana, Calif.-based Banc of California Inc. on July 25, was the third-lowest valued bank at the end of August. PacWest also had the largest decrease in short interest at July 31 among major exchange-traded US banks.

The No. 11-ranked bank, Bethesda, Md.-based Eagle Bancorp Inc., was one of nine companies in the bottom 20 for valuation that had a dividend yield in excess of 5% as of Aug. 31. Eagle Bancorp, with a 7.48% yield, has paid a 45-cent cash dividend for the last five quarters.

Citigroup Inc.'s dividend yield was 5.13% at the end of August. The money-center bank announced a 2-cent increase in its quarterly dividend to 53 cents on July 20. Citigroup also has been increasing its exposure to base metals, buying large amounts of aluminum and zinc.

– Access S&P Global Market Intelligence's calculations for price to adjusted tangible book value as of Aug. 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

Abilene, Texas-based First Financial Bankshares Inc. and Dewitt, NY-based Community Bank System Inc. have been the two highest-valued banks in the analysis since the methodology changed in March. Both stocks were down double-digit percentages last month but still traded over 350% of adjusted tangible book value.

Carter Bankshares Inc. had the eighth-highest valuation and the largest increase from its price/basic tangible book value to its price/adjusted tangible book value because of a quantum leap in nonperforming assets. The Martinsville, Va.-based bank placed its largest lending relationship — $301.9 million in aggregate principal (with specific reserves of $53.6 million) to West Virginia Gov. Jim Justice and his family, consisting of commercial loans in the hospitality, agriculture and energy sectors — on nonaccrual status in the second quarter. That relationship accounted for 96% of nonperforming assets at June 30, and pushed the nonperforming assets to assets ratio up to 7.17%, more than twice as high as any bank in the analysis.

In August, rating agency Moody's downgraded 10 US banks, including the banking subsidiaries for two of the most expensive companies: Kansas City, Mo.-based Commerce Bancshares Inc. and Houston-based Prosperity Bancshares Inc. Additionally, Moody's put San Antonio-based Cullen/Frost Bankers Inc., ranked No. 12, on review for downgrade.