Largest US banks lead sector market performance in September

Although most of the US banking sector traded down in September, the Big Four banks bucked the trend, propping up the market-cap weighted index.

Each of the four US banks with more than $1 trillion in total assets as of June 30 posted positive total returns in September. Citigroup Inc. led the way, trading up 5.1%. JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. followed with returns of 4.6%, 2.2% and 2.0%, respectively.

Those positive returns did not extend to the next largest asset tier. Eight of the 10 banks with assets between $100 billion and $1 trillion recorded negative returns; Citizens Financial Group Inc. traded up 1.7% and U.S. Bancorp ticked up a fraction of a percent.

Banks between $50 billion and $100 billion in assets fared a bit better. Six of the 19 stocks went up in September, highlighted by Valley National Bancorp's 2.4% return. Of the remaining 175 banks in an S&P Global Market Intelligence analysis, 16 experienced a positive total return in September.

S&P Global Market Intelligence analyzed US banks trading on the Nasdaq, NYSE or NYSE American with total assets of more than $3 billion. The analysis excludes banks in the mutual holding company ownership structure and other operating subsidiaries.

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

For all 208 banks in the analysis, the median return in September was negative 3.4%, which trailed the 1.6% return of the S&P US BMI Banks index and the 3.7% return of the S&P 500. Market pressure pushed down valuations. The median price-to-adjusted tangible book value (TBV) for the industry was 141.9% as of Sept. 30, down from 145.4% at the end of August.

Least expensive banks

Dallas-based First Foundation Inc. was the least expensive bank in the analysis by price-to-adjusted TBV for the ninth month in a row. Its valuation was 50.5% at the end of September and would have been higher if preferred shares from a capital raise in July 2024 were converted to common stock. Such a conversion would have dropped the bank's basic TBV to $9.34 per common share from $11.65 per common share as of June 30, according to a July 31 filing.

First Internet Bancorp, which had the second-lowest price-to-adjusted TBV, was the fourth-weakest market performer in the analysis in September, with a total return of negative 10.5%. The bank expects to report a material impairment charge in the third quarter from the sale of performing single-tenant lease financing loans in September.

The No. 15 bank, OceanFirst Financial Corp., plans to pursue organic growth rather than M&A. The Toms River, New Jersey-based bank has been hiring bankers who can attract low-cost deposits.

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Most expensive banks

The Bancorp Inc. screened as the highest-valued bank for the third consecutive month. Its price-to-adjusted TBV was 438.5% as of Sept. 30, down 8 percentage points from Aug. 29, but more than 100 percentage points higher than any other bank in the analysis.

The second-most expensive bank — Dewitt, New York-based Community Financial System Inc. — announced a minority investment in Leap Holdings Inc. in September.

Triumph Financial Inc., the No. 8 bank by highest valuation, disclosed its exposure to subprime auto lender Tricolor Holdings LLC, which filed for Chapter 7 bankruptcy on Sept. 10. Triumph had the worst monthly return in the analysis at negative 18.6%.

Also in September, Nicolet Bankshares Inc., the 18th-most expensive bank, announced leadership continuity through 2030. The Green Bay, Wisconsin-based bank has earned a return on average tangible common equity in excess of 17% for the last seven quarters.