US banks with lowest price to adjusted tangible book values in April

Sandwiched between two big bank failures in March and the second-largest ever bank failure May 1, most community and regional bank stocks got pummeled again in April.

The 207 banks in this S&P Global Market Intelligence analysis recorded a median monthly return of negative 6.9%, underperforming market-cap weighted indexes such as the S&P U.S. BMI Banks at 1.7% and the S&P 500 at 1.6%.

There was a flight to perceived safety in April with investors favoring some of the largest banks. Hicksville, NY-based New York Community Bancorp Inc., fresh off its transformational failed bank deal, was the top market performer in the analysis with a total return of 18.3%. The Big Four US banks also bucked the trend of the majority of the sector, each trading up at least 1.5% in April. JPMorgan Chase & Co. and Wells Fargo & Co. had particularly strong months, with returns of 6.9% and 6.3%, respectively.

S&P Global Market Intelligence analyzes US banks trading on the Nasdaq, NYSE or NYSEAM with total assets of greater than $3 billion in the most recent quarter available. The analysis excludes banks seized by regulators, banks undergoing a liquidation, banks that recently completed a reverse merger, banks with a negative held-to-maturity (HTM) and credit adjusted tangible book value, banks in the mutual holding company ownership structure, other operating subsidiaries, and mutual bank conversions until financial data is available for the quarter following the conversion date.

HTM and credit adjusted tangible book value is calculated as the sum of tangible common equity; unrealized gain or loss from HTM 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

With regulators seizing First Republic Bank, HomeStreet Inc. became the cheapest company in the analysis. The Seattle-based bank ended April trading at 34.7% of HTM

and credit adjusted tangible book value (TBV). It was by far the weakest market performer last month with a total return of negative 45.7%.

– Click here for S&P Global Market Intelligence's calculations for price to adjusted tangible book value as of April 28. – Click here for a primer on the US banking industry. – Read more about the liquidity crunch and the fallout for the financial sector in our new Issue in Focus.

One of the takeaways from HomeStreet's first-quarter earnings was substantial margin compression as deposit and borrowing costs continued to rise sharply. The net interest margin fell to 2.18%, from 2.57% in the linked quarter and 3.28% in the year-ago quarter.

HomeStreet Chairman, President and CEO Mark Mason said in the first-quarter earnings release, "Due to the highly uncertain interest rate and economic environment going forward, we anticipate these funding cost pressures to continue, and despite the future repricing of our loans and investment securities, we expect our net interest margin to decline somewhat for the remainder of 2023."

Bethesda, Md.-based Eagle Bancorp Inc. had the second-worst monthly return in the analysis at negative 24.0%. Its price to HTM and credit-adjusted TBV of 69.7% ranked No. 15 as of April 28 and represented about a 29 percentage point decrease from March 31.

Eagle Bancorp experienced deposit flight in the first quarter. Total deposits were down 14.3% quarter over quarter and 22.1% from the year-ago quarter. The funding composition also changed: total short-term borrowings and time deposits were up 113.0% and 70.7%, respectively, compared to year-end 2022, while all other deposits declined 22.8%.

Another bank that grappled with deposit attrition was PacWest Bancorp, the sixth least expensive bank. The Beverly Hills, Calif.-based bank had total deposit net outflows of 16.9% quarter over quarter. Total retail non-maturity deposits decreased 27.6%, while brokered time deposits increased 92.1%. PacWest, like Eagle Bancorp, tapped the Bank Term Funding Program and added to its Federal Home Loan Bank borrowings to increase liquidity.

PacWest is exploring strategic options. In a May 4 press release, the bank said, "Recently, the company has been approached by several potential partners and investors — discussions are ongoing. The company will continue to evaluate all options to maximize shareholder value."

Largest valuation changes

Honolulu-based Bank of Hawaii Corp. had the largest increase between price to HTM and credit adjusted TBV and price to basic TBV at 107 percentage points. Its tax-adjusted mark on HTM securities improved to negative $561.6 million at March 31 from negative $631.0 million at Dec. 31, 2022.

The bank with the largest decrease between the valuation ratios was Sioux Falls, SD-based Pathward Financial Inc. It maintains a small amount of HTM securities and its loan loss reserve of $84.3 million at March 31 was more than double the sum of its nonperforming assets and loans delinquent for 90 or more days but still accruing interest.

Most expensive banks

At the end of April, First Financial Bankshares Inc. was the highest-valued bank in the analysis by price to adjusted TBV. With a loans to deposits ratio of 60.1% at March 31, the Abilene, Texas-based bank has a significant amount of flexibility for balance sheet growth and restructuring. During the last year, First Financial has been reinvesting cash flows from securities into loans. Available-for-sale securities have declined 18.5%, while net loans have gone up 17.7%.

Dewitt, NY-based Community Bank System Inc. was the second-most expensive bank as of April 28. The bank is seeking opportunities to expand its nonbanking businesses through M&A activity.