Bank Stock Performance – July
Bank stocks generally declined in value during July 2014 on news of unemployment figures and general global uncertainty. The largest bank stocks declined the most in July with the SNL Bank Stock Index for banks between $1 billion and $5 billion dropping 5.4% compared to the overall SNL Bank Index dipping 1.8% and the S&P 500 declining 1.5% during the month. Smaller banks fared better with the SNL Bank Index for banks less than $500 million in assets adjusting down 0.5% and banks between $500 million to $1 billion remaining flat during the month.
Year-to-date through July 2014, public bank values continued to grow with the smallest banks leading the growth. The SNL Bank Index for institutions with less than $500 million gaining 14.6% keeping pace with the broader market with the S&P 500 reporting a gain of 14.5%. Banks between $500 million and $1 billion mirrored the overall SNL Bank Index at 6.7% while the larger banks between $1 billion and $5 billion grew 5.2% year-to-date.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, public bank stocks reported lower pricing multiples across all regions during July and on a year-to-date basis. The Northeast region posted the largest decline (15%), dropping from a median 164% of tangible book at December 2013 to a median 140% of tangible book at July 31, 2014, followed by the Midwest region dropping (13%) from 153% of median tangible book at year-end 2013 to 132% of median tangible book at July 31, 2014. State Street Corp. in Boston heavily influenced the Northeast Index and saw a 12.5% decline year-to-date on tangible book pricing. All other regions declined between 5% and 9% on median tangible book pricing.
Standout pricing remained in the Southwest with the highest median price to tangible book at 178% and median price to earnings at 16.6x. The Southwest maintained strong median tangible equity (10%), median earnings (LTM ROAA 1%), median asset quality (NPAs/Assets 0.67%) and median net interest margins (3.72%). The West was at a distant second on a book basis reporting a median price to tangible book multiple of 150% and a 15.5x last twelve months earnings. The West also reported strong median tangible equity (10.6%) median earnings (LTM ROAA 1.1%) and the strongest net interest margins (3.95%) but also reported the weakest median asset quality (NPAs/Assets 1.5%). From an earnings perspective, the Southeast region was the only region to maintain its value in July increasing 2% to a median price to last twelve months earnings of 16.6x and on a year-to-date basis declined the least (0.5%) of the regions. However, the Southeast region reported the lowest median price to tangible book pricing of 131% at July 31, 2014 and reported the lowest median earnings (LTM ROAA 0.76%) as the region continues to work through asset quality issues (NPAs/Assets 1.47%).
PRICING BY SIZE
Looking at public bank pricing based on the size of institutions, all banks saw a decline in tangible book pricing during July but on a year-to-date basis, banks under $1 billion saw a slight improvement in pricing multiples while banks over $1 billion reported a significant decline in value. In July, public banks under $1 billion demonstrated price to tangible book multiples increases between 1% and 3% while price to earnings grew between 1.4% and 2.2% (based on last twelve months earnings as of June 30, 2014). However, banks under $1 billion generally reported the lowest median pricing levels on tangible book (106% to 107%) in July and lowest median price to earnings (13.3x to 13.6x based on last twelve months earnings as of June 30, 2014) due in part to reporting the weakest earnings (ROAA 0.69% to 0.73% based on last twelve months earnings as of June 30, 2014) and lowest asset quality (NPAs/Assets 2.1% to 2.2%).
Year-to-date through July 2014, banks between $5 billion and $10 billion reported a 33% decline on both median price to tangible book and 2.2% decline on price to last twelve months earnings, declining from 206% to 172% of tangible book and from 18.6x to 16.3x earnings, respectively while maintaining the highest median pricing overall. The 39 public banks between $5 billion and $10 billion reported the highest earnings (ROAA 1%) for the last twelve month ending June 30, 2014. Banks greater than $10 billion reported the next highest pricing with a median price to tangible book of 164% (down 22% from year-end 2013) and a median price to last twelve months earnings multiple 15.7x as of June 30, 2014 (down 0.8% from year-end 2013). This group also had the best median asset quality (NPA/assets 0.93%).
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