The numbers have been crunched, the data analyzed, and now the winners can be revealed. And The Champion is ... Bank OZK!
How We Choose
We analyze our group of 32 banks across a number of performance and market-related metrics and use a proprietary scoring algorithm to assign ratings to individual banks and defined industry segments. The derived score is based on both absolute and relative performance and is used to rank each company relative to its industry sector and to inform our valuation estimates and projections. We examine banks in three primary sectors – Super Regional, Regional and Super Community. The definitions of these sectors and a listing of the banks we follow can be found on the home page of our website. Every quarter, and for the year as a whole, we name our top-rated banks in each sector and an overall champion. And now that First quarter results are in and analyzed, we can report the long-anticipated results.
Our Three Sector Winners
Two of our top ranked banks are new to the podium this quarter with Bank OZK being our returning champion in the Super Community category. Based on their continued excellent financial performance through all economic cycles, it is not surprising that Bank OZK is our overall top scoring bank, replacing M&T. We also have identified the losers in each category. For example, Signature Bank (SBNY) was our lowest rated company for 2022. Guess we got that one right! However, because we choose to accentuate the positive, the ranking of all of the banks we cover (including the losers) is only available to subscribers of our in-depth reports.
Our Top Scoring Banks in Each Category
These banks have several factors in common that contribute to their performance – they run traditional business models, perform extremely well on the basics, and deliver consistent and sustained results. In our view, the key attribute that connects these three companies is focus – they know what they do well and don’t get distracted or dissipate resources by chasing hobby businesses or unfamiliar markets. This is a testament to what we consider to be strong, experienced, and effective management teams in all three banks. While performance on various metrics varies, each of these companies is ranked at or above average on every metric we analyze and leads their sector in a few key categories. It is also not surprising that two of the three rank first in Net Interest Margin. This shows that they rigorously manage their balance sheet mix and pricing -- a critical requirement these days.
Highest Ranked Metrics
Does the Market Care?
In a perfect world and with an efficient market, we would expect our ratings and rankings to translate into higher market multiples and stronger market performance. And, often they do, but not always. We use our scoring algorithms and proprietary valuation model to set a target price for each of our companies’ stock. We don’t really expect to call the price with precision but we use it to assess whether we believe the company is overvalued, undervalued or fully valued relative to the banking sector and market as a whole. At the end of the quarter we rated the entire sector as undervalued, and identified all three of our top rated banks as significantly undervalued. As the charts show, each of these companies outperformed the banking index for the first quarter. And, while all banks got crushed in March, OZK and EWBC got hammered less than most. KEY, on the other hand was punished, in our view unduly, more harshly than many of its peers. Consequently, all three of these companies appear to be very attractive at these valuations, especially Keycorp.
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