S&P Global Market Intelligence identified 10 tangiblebook value winners in the banking sector as of Sept. 27. These banks aresuccessfully managing their tangible common equity yet are priced at a discountto the industry.
Banks are financial intermediaries with credit and interestrate risk, so sometimes they trade to a certain extent based on variouscalculations of liquidation value, including TBV and cash dividends. Mostcompanies in the sector that are growing gross TBV (basic TBV, gross of cashdividends paid) faster than the industry median and that are earning well abovetheir cost of capital, trade at premium valuations. A handful of those highperformers may be underappreciated, unless investors are forecasting a sustaineddownward trend in profitability.
The analysis byS&P Global Market Intelligence covered only fully public U.S. banks andthrifts that were not merger targets, traded on a major exchange, had totalassets of greater than $1 billion as of June 30 and had nonrecurringrevenue-to-total revenue of less than 10% for the 12 months ended June 30.
The most importantcriterion, the lynchpin for TBV winners, was growth in gross TBV in excess ofthe industry median over multiple periods. The growth hurdles were greater than12.5% for the 12 months ended June 30 and greater than 3.5% for the quarterended June 30. Additionally, inclusion on the winners’ list required a returnon average tangible common equity (ROATCE) in excess of 11% for the 12 monthsended June 30 and a price/TBV below 150% as of Sept. 27.
Among the TBV winners, Sandusky, Ohio-based experienced thehighest growth rate in gross TBV for the last 12 months at 25.7%. It also wasthe only one of the 10 companies to clear the 20% ROATCE bar. Its results wereaided by a loanpayoff in the second quarter.
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