Bank Stock Performance – September
After increasing in August, pricing for public bank stocks generally declined in September 2014 for banks under $5 billion in assets as consumer confidence took a hit, construction spending was off and mortgage applications slipped amidst the backdrop of unrest in Hong Kong. The SNL Bank Index held at a 0.6% gain in September while the S&P 500 dropped 1.6%. The SNL Bank Index for banks between $1 billion and $5 billion declined 3.1%, while banks under $500 million declined 2% and banks between $500 million and $1 billion dropped 0.5% during the month.
Year-to-date through September 2014, the smallest banks, those below $500 million, retained the most value compared to banks over $1 billion. The SNL Bank Index for Banks below $500 million improved 12.7%, compared the growth in the SNL Index for banks between $1 billion and $5 billion of 4.8% and to growth of 6.8% for the SNL Index for banks between $500 million and $1billion. The overall SNL Bank Index of 16% approximated the S&P 500 Index of 17.3% year-to-date.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, all regions reported lower bank stock prices in September and on a year-to-date basis, with the exception of the Midwest which showed a slight improvement on a price to earnings basis through September.
The Southwest continued to report the highest price to tangible book multiple (1.83x) and highest price to earnings (17x) but reported the largest decline in September with price to tangible book declining 7.6%. The West reported the second highest price to tangible book multiple (1.49x) dropping 4.4% and third highest price to earnings (15.4x) in September. Strong earnings, tangible equity and net interest margins supported strong pricing for the West and Southwest as evidenced in the following chart. All other regions reported a median price to tangible book multiple below 1.37x with the Mid-Atlantic states reporting the lowest price to tangible book multiple of 1.29x. With the exception of the Southeast who reported the lowest median last twelve months earnings, the Northeast, Midwest and Mid-Atlantic reported price to earnings below 15x.
Year-to-date, the Northeast saw its median price to tangible book multiple drop 25% to 1.39x while the Mid-Atlantic states declined 16.9% to a median of 1.29x, the lowest among the regions. Reviewing performance by region, the Southeast reported the lowest asset quality and lowest earnings while the Northeast generally reported the lowest equity and net interest margin.
PRICING BY SIZE
When looking at public bank pricing by size of institution, all banks saw a decline in median tangible book pricing during the month of September with the exception of banks between $5 billion and $10 billion while median price to earnings multiples declined across all bank groups by size. At September, banks below $1 billion reported the lowest pricing but reported an increase in value year-to-date while banks over $1 billion reported the highest overall median pricing but reported notable declines on median price to tangible equity and price to earnings multiples year-to-date. Banks over $1 billion reported declines in median tangible book multiples between 12% and 34% year to day, while banks under $1 billion reported year-to-date gains between 1.7% and 3.8%. At September 30, 2014, banks larger than $5 billion reported the highest pricing with median price to tangible book exceeding 1.60x and median price to earnings approximating 16x, similar to the trend in August.
The larger financial institutions, those in excess of $5 billion, reported the highest earnings, best asset quality and loan to deposit ratios which helped maintain pricing multiples. Banks below $500 million generally reported the lowest earnings (ROAA of 0.65%), elevated non-performing assets (NPA/Assets 1.79%) and low loan to deposits (83.7%)
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