US bank stocks rally to 4-month valuation high

Bank stocks ripped higher in November, outperforming the broader market and pushing the sector valuation to its highest level in the last four months.

The 210 banks in the S&P Global Market Intelligence analysis had a median price to adjusted tangible book value (TBV) of 126.7% at Nov. 30, up from 113.7% a month earlier and representing the peak valuation since 129.5% at the end of July.

The median total return for those banks was 10.5% in November, topping the S&P 500's 9.1% return but trailing the S&P US BMI Banks index's 14.1% return. Thirteen banks in the analysis traded up more than 20% last month, while just six of the banks experienced a market loss.

Blue Ridge Bankshares Inc. was the weakest market performer with a return of negative 14.3%. Its price to adjusted TBV declined to 35.7%, second lowest in the analysis. The Charlottesville, Va.-based bank reported a $41.4 million net loss in the third quarter, which included a goodwill impairment charge of $26.8 million. Blue Ridge Bankshares disclosed in its most recent Form 10-Q that it could be seeking additional capital after the Office of the Comptroller of the Currency mandated higher capital ratios for banking subsidiary Blue Ridge Bank NA.

S&P Global Market Intelligence analyzed US banks trading on the Nasdaq, NYSE or NYSE American with total assets of greater than $3 billion as of the most recent quarter. The analysis excludes banks with a negative held-to-maturity (HTM) and credit adjusted TBV, banks in the mutual holding company ownership structure and other operating subsidiaries.

HTM and credit-adjusted TBV 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

Despite an analysis-best 42.2% return in November, Seattle-based HomeStreet Inc. was the lowest-valued bank for the eighth consecutive month. Its price to adjusted TBV rose to 28.1%, from 19.1% at Oct. 31.

Shares of Dallas-based First Foundation Inc., ranked third, surged 29.7%. It is one of the largest banks exceeding 2006 commercial real estate guidance and had one of the biggest decreases in loans to deposits ratio for the year ended Sept. 30.

Seattle-based WaFd Inc. and the No. 6 bank, Santa Rosa, Calif.-based Luther Burbank Corp., extended the outside date of their merger agreement to Feb. 29, 2024. Luther Burbank is the only merger target among the 20 cheapest banks.

Like many banks, No. 16 Hope Bancorp Inc. reduced exposure to office lending during the third quarter. But the Los Angeles-based bank bucked the industry trend by also cutting back on industrial/warehouse exposure during the last year.

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Most expensive banks

Honolulu-based Bank of Hawaii Corp. was the most expensive bank in the analysis as of Nov. 30, with a price to adjusted TBV of 455.4%. The change to adjusted valuation from price to basic TBV was 255.9 percentage points, much higher than any other bank analyzed. At the end of October, Bank of Hawaii was the most shorted US bank stock trading on a major exchange.

San Antonio-based Cullen/Frost Bankers Inc., ranked as the fifth-most expensive bank, also had a significantly higher adjusted valuation relative to price to basic TBV. More than half of the deposits of its commercial bank subsidiary, Frost Bank, were uninsured as of Sept. 30, according to call report data.

Charleston, W.Va.-based City National Bank of West Virginia, a unit of No. 7 City Holding Co., was the largest bank to debut in the community bank leverage ratio framework in the third quarter.

Oklahoma City-based BancFirst Corp. and Truist Financial Corp., ranked No. 18 and No. 19 by highest valuation, respectively, announced management changes in November. BancFirst's CFO will be resigning, while Truist revealed several organizational updates, including a new COO.