Despite lackluster performance from the largest US banks, the banking sector greatly outperformed the broader market in July, pushing valuations to a year-to-date high.
The market capitalization-weighted S&P US BMI Banks index closed July with an 8.3% monthly total return, well ahead of the S&P 500's 1.2% return. Market performance within the banking sector was bifurcated. The Big Four US banks dragged down the index's return, while many regional and community banks appreciated more than 20%. The majority of those gains came at the beginning of earnings season.
Just two of the 208 banks in the S&P Global Market Intelligence analysis recorded negative returns in July: Coral Gables, Fla.-based Amerant Bancorp Inc. and Big Four member Wells Fargo & Co. The other three members of the Big Four — Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. — ranked third, fourth and seventh, respectively, for lowest return.
Investors favored the rest of the sector, which is perceived to have brighter prospects for net interest income growth. All 11 banks with a market cap between $10 billion and $100 billion as of July 31 had a double-digit percentage monthly return, highlighted by First Citizens BancShares Inc.'s 24.0%.
Of the 23 banks with a market cap between $5 billion and $10 billion, 20 had a total return higher than 12%, including Tacoma, Wash.-based Columbia Banking System Inc. and Abilene, Texas-based First Financial Bankshares Inc., with 30%+ returns. And 156 of the 170 banks with a market cap below $5 billion returned more than 10% in July, led by Hingham, Mass.-based Hingham Institution for Savings at 39.4% and The Bancorp Inc. at 37.3%.
The July rally significantly increased sector valuations. The median price to adjusted tangible book value (TBV) in the analysis jumped to 152.1% from 127.8% at the end of June and represented the highest month-end valuation since 152.4% at the end of 2023.
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
The July analysis excluded Blue Ridge Bankshares Inc., the cheapest bank by price to adjusted TBV in June. The Charlottesville, Va.-based bank reported $2.93 billion in total assets as of June 30, which was below the $3 billion threshold. Blue Ridge Bankshares would have slotted in as the No. 7 bank by lowest valuation, with a price to adjusted TBV of 72.9%.
First Foundation Inc. replaced Blue Ridge Bankshares as the least expensive bank in the analysis, with a valuation of 45.7% as of July 31. That ranking could drastically change once third-quarter financial data is available, as the Dallas-based bank's adjusted TBV at June 30 does not account for its $228 million capital raise completed July 9.
That offering surprised the analyst community and the market. The bank's stock plunged 23.9% on July 3, the day after the offering announcement date, but quickly recouped some losses and ended the month about 7% higher. The additional capital provides First Foundation with much more flexibility but at a substantial cost. On a pro forma basis excluding warrants, the company estimated in an investor presentation that its basic TBV per share at March 31 would fall to $10.15 from $16.35. The exercise of warrants from the offering could drop that pro forma calculation to below $9.
New York Community Bancorp Inc. was the third-cheapest bank as of July 31. Partly because of a higher share count, its price to adjusted TBV increased to 55.6% from 33.6% at the end of June. The Hicksville, NY-based bank has recorded a net loss for three consecutive quarters. In its second-quarter earnings investor presentation, the bank forecast diluted core earnings per share of between breakeven and 5 cents in 2025. Also notable is the bank's multipronged effort to reduce risk and transform the business model, including cutting commercial real estate office exposure, selling mortgage warehouse loans, selling its mortgage servicing business and bringing in more management talent.
While many banks are actively reducing their commercial real estate office loan portfolios, the trend in the commercial real estate retail/shopping center segment is mixed. Los Angeles-based Hanmi Financial Corp. disclosed that retail commercial property loans accounted for 17.7% of its gross loans held for investment at June 30 and grew 0.3% on a linked-quarter basis. Problem asset levels in the retail sector are minimal at Hanmi, with just 0.1% on nonaccrual status and 0.7% criticized, as reported in a Form 8-K filing.
Most expensive banks
Three banks — Dewitt, NY-based Community Financial System Inc., First Financial Bankshares and Dallas-based Triumph Financial Inc. — vaulted to a valuation above 4x adjusted TBV.
The fourth-most expensive bank, The Bancorp, more than doubled its available-for-sale securities portfolio in the second quarter. It bought approximately $900 million of fixed-rate securities to hedge against potential Federal Reserve rate cuts.
![]() | – Access S&P Global Market Intelligence's calculations for price to adjusted tangible book value as of July 31, 2024 |