The potential unraveling of HomeStreet Inc.'s merger with FirstSun Capital Bancorp sent both companies' stocks into a tailspin and shook up the monthly valuation rankings.

After market close on Oct. 29, Seattle-based HomeStreet and Denver-based FirstSun said they failed to receive regulatory approval for their merger, which was announced Jan. 16 and amended April 30. The companies disclosed that they are evaluating "an alternative regulatory structure for the merger" as well as terms for a deal termination "if no alternative structure is feasible."

The market reaction was swift and severe. Shares of HomeStreet plummeted 34.9% Oct. 30, and finished the month down 42.5%, the worst market performance among the 210 banks in an S&P Global Market Intelligence analysis. HomeStreet's price-to-adjusted tangible book value (TBV) ratio fell to 32.5% as of Oct. 31, more than 20 percentage points lower than any other bank in the analysis and down from 58.0% at Sept. 30.

FirstSun's stock decreased 7.1% Oct. 30 and its monthly total return was negative 14.1%, which was the fourth-worst performance in the analysis. Its valuation declined to 107.6% from 129.7% a month earlier.

If the banks are not able to complete their merger, HomeStreet plans to sell $800 million of multifamily loans, which could help the bank return to profitability as early as the first quarter of 2025. HomeStreet has lost money for the last four quarters, including a $7.3 million loss in the third quarter.

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.

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

With a price-to-adjusted TBV ratio of 53.2%, Dallas-based First Foundation Inc. was the second-least expensive bank in the analysis as of Oct. 31. A third-quarter net loss from the reclassification of $1.9 billion of multifamily loans to the held-for-sale category caused the bank's basic TBV per share to decrease 16.1% from June 30 to $13.79. In an 8-K filing, First Foundation disclosed that its basic TBV would have been $9.50 with the conversion of preferred shares from the capital raise in July.

The bank plans to begin securitizing multifamily loans in the fourth quarter.

The third-least expensive bank, Flagstar Financial Inc. — formerly known as New York Community Bancorp Inc. — has also been working to reduce multifamily exposure. The bank's outstanding multifamily loan balance declined 6% year to date through Sept. 30. The bank's exposure to nonowner-occupied commercial real estate office loans was down 8% in the third quarter and 24% from Dec. 31, 2023.

Like HomeStreet, Flagstar has lost money for the last four quarters. It provided a more bearish outlook for earnings next year in an 8-K filed Oct. 25. The updated projection for diluted core earnings per share is a loss of 30-35 cents. In its second-quarter earnings presentation, the bank projected to break even.

Hanmi Financial Corp., the 20th-least expensive bank on the list, was the top market performer in the analysis, with a monthly return of 23.0%. Following Hanmi's third-quarter earnings release, Matthew Clark of Piper Sandler raised his recommendation on the Los Angeles-based bank to "overweight" from "neutral."

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Most expensive banks

Dallas-based Triumph Financial Inc. seized the top valuation spot in October from Dewitt, NY-based Community Financial System Inc., which had held the title for the previous three months. The former's price-to-adjusted TBV was above 400% at Oct. 31, dropping the former most expensive bank down one rung on the ranking ladder. Triumph Financial's monthly return of 11.1%, meanwhile, was more than double that of Community Financial.

One way to command a premium valuation is to build a deposit base with muted sensitivity to Federal Reserve interest rate increases. Several of the most expensive banks — including Triumph Financial and Community Financial, along with No. 4 Pathward Financial Inc.; No. 5 The Bancorp Inc.; No. 7 City Holding Co.; and No. 17 CVB Financial Corp. — recorded a cumulative deposit beta from the fourth quarter of 2021 through the second quarter of 2024 that was at least 8 percentage points lower than industry median.

Some of the most expensive banks showed a significant increase in available-for-sale (AFS) securities in the third quarter. Triumph Financial's AFS portfolio was up 18.7% from June 30. The 14th-highest valued bank, Kansas City, Missouri-based Commerce Bancshares Inc., boosted its portfolio 7.4%, and No. 15 JPMorgan Chase & Co. grew its AFS securities 25.7% during the third quarter.

JPMorgan also reported a blowout quarter for its investment banking segment, with its total investment banking fees 12.5% higher than the estimate from Visible Alpha, a part of S&P Global Market Intelligence, and up 31.1% year over year. The estimated annual growth rates in 2025 and 2026 as of Oct. 17 were 10.4% and 9.8%, respectively, according to Visible Alpha.

Houston-based Prosperity Bancshares Inc., ranked 18th, cut its exposure to retail commercial real estate loans in the third quarter. Its outstanding balance fell 4.0% from June 30 to $1.55 billion as of Sept. 30.