3 Oct, 2024
US bank industry valuation falls back below 150% of adjusted TBV in September
By Robert Clark
Despite a 50-basis-point reduction in the federal funds rate, US bank stocks remained relatively calm in September, with the majority moving up or down less than 3%.
The median month-to-date total return for the 208 banks in the S&P Global Market Intelligence analysis was negative 1.9%. Only four banks recorded double-digit percentage returns: Hauppauge, NY-based Dime Community Bancshares Inc. and Wilmington, NC-based Live Oak Bancshares Inc. on the plus side, and Dallas-based First Foundation Inc. and West Reading, Pa.-based Customers Bancorp Inc. on the down side.
The median price to adjusted tangible book value (TBV) for the 208 banks was 145.8% at Sept. 30, down from 150.1% at the end of August and the year-to-date peak of 152.1% at July 31.
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.
Held-to-maturity and credit-adjusted TBV is calculated as the sum of tangible common equity, unrealized gain or loss from held-to-maturity 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
For the third consecutive month, First Foundation was the lowest-valued bank. With a return of negative 11.4% in September, the bank's price to adjusted TBV fell to 40.5%.
Next month, that valuation could look significantly different when third-quarter financial data is released because of the bank's capital raise in July. The additional capital gives First Foundation more flexibility but at a substantial cost. On a pro forma basis excluding warrants, the bank estimated in an investor presentation that its basic TBV per share at March 31 would decline to $10.15 from $16.35. If investors exercise warrants, the pro forma basic TBV per share could drop to below $9.
First Foundation has struggled to turn a profit for the last four quarters, with return on average assets hovering between 0.02% and 0.09%. Further rate cuts from the Federal Reserve could help lift the bank's margin and fuel an earnings recovery.
The seventh-cheapest bank in the analysis, Melville, NY-based First of Long Island Corp., announced a sale to Englewood Cliffs, NJ-based ConnectOne Bancorp Inc. on Sept. 5. The acquisition will catapult ConnectOne to well above the $10 billion asset threshold.
Another of the least expensive banks, No. 16 Hope Bancorp Inc., is on the other side of the M&A field. The Los Angeles-based bank announced a deal to acquire Honolulu-based Territorial Bancorp Inc. in April. In September, Territorial disclosed an unsolicited merger proposal, which it continues to eschew even as the offer price has increased.
Most expensive banks
Community Financial System Inc. was the most expensive bank in the analysis for the last three months. As of Sept. 30, the Dewitt, NY-based bank traded at 434.5% of adjusted TBV, down from 457.6% at Aug. 30.
The No. 3 bank by highest valuation, Pathward Financial Inc., filed a mixed shelf offering at the end of September. The company also announced a delayed closing for the sale of its commercial insurance premium finance business.
Berkshire Hathaway Inc. has been cutting its stake in Bank of America Corp., the ninth most expensive bank. As of Sept. 27, Berkshire Hathaway still owned more than 10% of Bank of America's common shares outstanding.
JPMorgan Chase & Co., the 19th most expensive bank, warned that analyst estimates for 2025 net interest income and noninterest expense could be too rosy. Other asset-sensitive banks could face similar issues during third-quarter earnings season.
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– Access S&P Global Market Intelligence's calculations for price to adjusted tangible book value as of Sept. 30, 2024 |
