Largest US bank stocks carry the sector in May

The US banks with the biggest market capitalizations outperformed the rest of the sector in May.

The median total return in May was 3.6% for the 212 banks in an S&P Global Market Intelligence analysis. This market performance was lifted by the 16 banks with a market cap greater than $10 billion as of May 30. The largest-cap group had a 7.8% median total return, ranging from 4.0% at First Citizens BancShares Inc. to 11.0% at Citigroup Inc.

Less than 10% of the banks in the analysis had a negative monthly return. Archbold, Ohio-based Farmers & Merchants Bancorp Inc.; Harrisburg, Pennsylvania-based Mid Penn Bancorp Inc.; and Hammond, Louisiana-based First Guaranty Bancshares Inc. were the worst market performers, trading down 9.0%, 7.6% and 5.9%, respectively. The only bank with a market cap greater than $2 billion that lost ground in the market was Flagstar Financial Inc., which recorded a return of negative 1.6% in May after a 25.6% return through the first four months of the year.

S&P Global Market Intelligence analyzed US banks trading on the Nasdaq, NYSE or NYSE American with total assets of greater 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.

Least expensive banks

Dallas-based First Foundation Inc. was the least expensive bank in the analysis by price-to-adjusted tangible book value (TBV) for the fifth consecutive month. Its valuation was 46.9% as of May 30 and would have been higher if preferred shares from a capital raise in July 2024 were converted to common stock. The conversion would have lowered the bank's basic TBV to $9.42 from $11.77 at March 31, according to an April 30 investor presentation.

First Foundation recorded net income of $6.9 million for the first quarter after posting net losses for the previous two quarters. The bank's net interest margin has risen for four consecutive quarters and management is projecting continued expansion. With a return to profitability and a smaller balance sheet, First Foundation's capital ratios increased across the board on a quarter-over-quarter basis.

Three analysts, previously at Wedbush Securities, joined Jefferies this year and initiated coverage on a basket of US banks, including First Foundation at "buy." The analysts also started covering Bethesda, Maryland-based Eagle Bancorp Inc., ranked No. 2 by lowest price-to-adjusted TBV, with a "hold" rating and No. 18 Los Angeles-based Banc of California Inc. with a "buy" recommendation.

Eagle Bancorp and First Internet Bancorp, which was the third-least expensive bank in the analysis, are two of the largest US banks that exceeded the 2006 commercial real estate regulatory guidance as of March 31.

Melville, New York-based First of Long Island Corp., which was the No. 8 bank by lowest valuation, will no longer be in the analysis as it was acquired by Englewood Cliffs, New Jersey-based ConnectOne Bancorp Inc. at the beginning of June.

Primis Financial Corp., the 13th-cheapest bank, reported a $24.6 million gain in the first quarter from the deconsolidation of Panacea Financial Holdings. The McLean, Virginia-based bank's return on average tangible common equity jumped to 36.55% from 3.84% in the year-ago quarter.

In May, No. 15 Citigroup announced the sale of its consumer banking business in Poland, as well as the sale of Citi Global Alternatives LLC. Additionally, Berkshire Hathaway Inc. disclosed that it exited its Citigroup stake of 14.6 million shares during the first quarter.

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Most expensive banks

Abilene, Texas-based First Financial Bankshares Inc. ascended to the top valuation rank as of the end of May. Its price-to-adjusted TBV was 358.7%, up from 340.9% at April 30.

Dewitt, New York-based Community Financial System Inc. slotted in at No. 2 following three consecutive months as the most expensive bank in the analysis.

The third-most expensive bank, Pathward Financial Inc., received a noncompliance notice from Nasdaq Stock Market LLC for failing to file a Form 10-Q for the fiscal quarter ended March 31. Pathward's total return in May ran counter to the industry trend at negative 1.7%.

The No. 4 bank, The Bancorp Inc., announced that a deal to sell a problem real estate asset failed to close even after multiple deadline extensions.

On May 21, Oklahoma City-based BancFirst Corp., the seventh-most expensive bank, announced its planned acquisition of Collinsville, Oklahoma-based American Bank of Oklahoma.

On May 29, No. 20 Wells Fargo & Co. announced that it agreed to sell the assets of its rail equipment leasing business for $4.4 billion. On June 3, Wells Fargo disclosed that the Federal Reserve removed the $1.95 trillion asset cap that was established for the bank.