US bank stocks take a breather after July rally

Following a widespread rally in July, many US bank stocks settled for minimal change in August.

The median monthly total return for the 208 banks in the S&P Global Market Intelligence analysis was negative 0.4%. More than half of those companies recorded a return of between 2.0% and negative 2.0%. Only two banks had double-digit percentage returns: merger target Seattle-based HomeStreet Inc., up 11.1%, and West Reading, Penn.-based Customers Bancorp Inc., down 19.6%.

The median price to adjusted tangible book value (TBV) for the 208 banks was 150.1% at the end of August, down from 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

Dallas-based First Foundation Inc. was the cheapest bank in the analysis at the end of August, with a price to adjusted TBV of 45.7%. That valuation could be significantly higher once third-quarter financial data is released because of the bank's $228 million capital raise completed July 9. The equity infusion provides First Foundation with much more flexibility but at a substantial cost. On a pro forma basis without warrants, the company 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 under $9.

Hicksville, NY-based New York Community Bancorp Inc. was the No. 2 bank by lowest valuation at 57.3% of adjusted TBV. The market reacted favorably to investors from the $1.05 billion capital raise in March exchanging preferred shares for common shares. Going forward, New York Community is looking to expand its commercial and industrial loan portfolio.

Flushing Financial Corp. at No. 5 also wants to diversify its asset base with more C&I loans. Activist investor Lawrence Seidman, however, is encouraging the Uniondale, NY-based bank to maximize shareholder value by pursuing a sale.

St. Louis Park, Minn.-based Bridgewater Bancshares Inc., the 19th-least-expensive bank, is growing market share in the Twin Cities with its first bank acquisition since going public in 2018. On Aug. 28, Bridgewater Bancshares unit Bridgewater Bank agreed to acquire Minnetonka, Minn.-based First Minnetonka City Bank. In a Form 8-K filing, Bridgewater Bancshares projected that the all-cash transaction, which is expected to close in the fourth quarter, will be 15% accretive to 2025 estimated EPS with a TBV earnback inside of three years.

Most expensive banks

Dewitt, NY-based Community Financial System Inc. had the highest valuation in the analysis for the second consecutive month. As of Aug. 30, it traded at 457.6% of adjusted TBV, up 5 percentage points from the end of July.

Pathward Financial Inc., the third-highest-valued bank, announced the sale of its insurance premium finance business on Aug. 28. On a conference call discussing the transaction, CFO Gregory Sigrist guided to a pretax gain of approximately $17 million for the year ended Sept. 30.

On Aug. 5, ServisFirst Bancshares Inc., the eighth-most-expensive bank, filed a mixed shelf registration statement. As of June 30, the Birmingham, Ala.-based bank's leverage ratio was 9.81% and its tangible common equity ratio was 9.33%.

Some of the most expensive banks were among the most active branch openers and closers in the second quarter. San Antonio-based Cullen/Frost Bankers Inc., No. 18 by highest valuation, had five net branch openings, ranking second among all US banks and thrifts. On the other hand, No. 20 U.S. Bancorp had 48 net closings, topping the sector. Additionally, JPMorgan Chase & Co. at No. 16 had 28 net closings for second place. JPMorgan has announced plans to add 25 branches in Iowa within the next six years.

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