After declining in July, public bank stocks generally rebounded in August 2014 on positive economic news regarding higher personal income levels and consumer spending but did not outperform the broader market. The largest banks saw the largest increase in August with the SNL Bank Stock Index for banks between $1 billion and $5 billion improving 2.8% compared to the overall SNL Bank Index increasing 2.6% while the S&P 500 gained 3.8% during August. Smaller banks maintained value with the SNL Bank Index for banks less than $500 million in assets moving up 1.2% and banks between $500 million to $1 billion adjusting up 1.1% during the month.
Year-to-date through August 2014, public bank values continued to see strong growth with banks between $500 million and $1 billion growing the least but nearing double digit growth at 9.1% year-to-date. The SNL Bank Index for institutions with less than $500 million grew the most at 17.3% edging out the overall SNL Bank Index at 16.2%. The overall market as measured by the S&P 500 improved 22.7%. Banks between $1 billion and $5 billion reported a gain of 14.1% showing respectable improvement in year-to-date through August.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, with the exception of the Mid-Atlantic, public bank stocks across all regions showed an improved median price to tangible book multiple during the month of August, but reported a decline across all regions on a year-to-date basis as median price to tangible book dropped across the board.
The Southwest maintained the most value year-to-date reporting a median price to tangible book multiple of 1.90x and a median price to last twelve months earnings of 17.2x. The Southwest continued to report strong tangible equity (9.94%), consistently high earnings (last twelve months ROAA of 1.01%) and consistently high net interest margin (last twelve months of 3.72%) with by far the strongest asset quality (NPAs/TA 0.70%) and ability to leverage deposits (loans/deposits of 87.1%) compared to the other regions. The West was the only other region which reported median tangible book equity in excess of 1.50x tangible book and over 15x earnings. The Western region reported the highest tangible equity level (10.6%), the highest earnings (last twelve months ROAA 1.08%) and net interest margin (last twelve months 3.96%), but reported the second worst asset quality (NPAs/Assets 1.37%) although it improved from July levels (NPAs/Assets 1.51%). The remaining regions all reported a median price to tangible book multiple ranging from 1.30x to 1.43x and a price to earnings multiple between 13.7x and 15x.
PRICING BY SIZE
Looking at public bank pricing by size of institutions, all banks saw an increase in tangible book pricing during the month of August with the exception of banks between $5 billion and $10 billion while price to earning multiples increased in each group with the exception of banks less than $500 million. However, on a year-to-date basis through August, only banks under $1 billion saw an improvement in tangible book and earnings multiples while banks over $1 billion reported a decline in value.
In August, Banks $5 billion and larger reported the highest pricing multiples with price to tangible book well in excess of 1.50x and earnings well in excess of 15x earnings. Banks in excess of $5 billion in assets benefited from top performance and reported the highest earnings (ROAA of 1.01% for banks $5-$10 billion and 0.97% for banks greater than $10 billion) and the best asset quality (NPAs/Assets of 1.10% for banks between $5-$10 billion and 0.89% for banks greater than $10 billion). Although banks between $5 billion and $10 billion reported the second highest net interest margin (LTM NIM at 3.64%) and banks over $10 billion reported the highest loan to deposits (87.8%) median pricing multiples declined from year-end 2013.
Year-to-date through August 2014, banks between $5 billion and $10 billion reported a 17% decline on median price to tangible book and a 7.8% decline on price to last twelve months earnings, dropping from 2.04x to 1.70x tangible book and from 18.5x to 17x earnings, respectively while maintaining the highest median pricing overall. Banks between $500 million and $1 billion reported a 7.6% increase (1.04x to 1.11x) on median price to tangible book and a 12% increase on price to earnings (12.3x to 13.7x). Banks $500 million and below also improved in pricing but reflected the lowest pricing multiples. Banks $500 million and smaller reported a 6.6% increase in price to tangible book multiples (1.05x to 1.12x) and a 15.4% increase in earnings multiples (11.2x to 12.9x).
More information regarding nationwide M&A activity can be found here.