Public bank stocks advanced moderately and kept pace with the broader market as growth in household spending improved and the housing sector showed further improvement. The labor market has continued to improve, as evidenced by job gains and dropping unemployment. In supporting the goal of maximum employment and price stability, the FOMC committee reaffirmed its stance that the current federal funds rate of 0% – 0.25% remains appropriate, and Federal Reserve Chair remains confident the rate increase will happen by the end of 2015. This news along with an improvement in housing, consumer confidence, sector earnings trends, employment and the overall health of the U.S. outweighed concerns over global macroeconomic conditions (especially in China and Greece) and sent broader markets and public bank and thrift stocks modestly higher during July. Essentially the same number of M&A transactions year-to-date through July were reported year-over-year than in 2014 while median pricing was up. (See below)
The SNL Bank Index improved 2.0% in July, matching the gains of the S&P 500. The SNL Bank Index for banks between $500 million and $1 billion in assets edged up the most at a 3.3% increase after falling 0.2% in June while banks between $1 billion and $5 billion in assets were flat after increasing 5.9% in June. Banks less than $500 million dropped 0.4% after growing 1.6% in June.
Over the past three months, the SNL Bank index increase of 7.6% outpaced the broader market growth with the S&P 500 index increasing 1.1%. Banks with assets between $1 billion and $5 billion reported the highest growth at 6.8% while banks with assets less than $500 million followed at 4.5% and banks between $500 million and $1 billion grew 2.2%.
Over the past year, banks continued to outperform the broader markets with the SNL Bank Index improving 14.8% compared to the S&P 500 of 9.0%. Banks between $1 billion and $5 billion in assets gained the most at 15.6%, while the smallest banks, those under $500 million, grew 11.3%. Also outperforming the market were banks between $500 million and $1 billion, which improved 9.1%.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, the Western and Southwest regions continue to maintain the highest price to tangible book multiples. The West reported a median price to tangible book multiple of 1.59x, up slightly from 1.58x at June 30, 2015, while the Southwest reported 1.66x of tangible book, down from 1.68x at June 30, 2015. Both regions reported the highest levels of tangible equity and net interest margins as of June 30, 2015. The Mid-Atlantic at 1.35x tangible book and Midwest at 1.44x continued to be priced on the low end of the value spectrum. Since year-end 2014, the Southeast region rebounded 7% on tangible book pricing on continued economic recovery followed by the Midwest growing 6.3% and the Mid-Atlantic at 4%. The Southeast reported the third highest net interest margin (3.71%) behind the Southwest (3.75%) and West (3.85%) but continued to lead the regions on non-performing asset levels (1.27%). The Northeast (0.8%), Southwest (0.1%) and West (0.3%) all reported lower price to tangible book multiples from year-end 2014 through July 2015.
On a median price to LTM earnings basis, results were mixed with multiples ranging from 14.8x to 16.6x. At the high end, the Northeast, Southeast, Southwest, and West averaged 16.6x while the Mid-Atlantic and Midwest averaged 15x LTM earnings. The Southwest and West reported the highest LTM ROAA at 0.97% and net interest margins. The Southeast (7.0%) and West (2.9%) reported the most improvement on price to LTM earnings from year-end 2014, while the Southwest continued to adjust down (1.1%) on energy pricing concerns along with the Northeast (0.7%) which was also down from year-end.
PRICING BY SIZE
Pricing continues to be proportional to size and the largest banks showed the most price improvement compared to the smallest banks. Banks greater than $10 billion reported a median price to tangible book multiple of 1.83x at July 2015, similar to 1.82x at June 2015 but up 9.5% from year-end 2014 at 1.67x. Banks between $5 billion and $10 billion reported the highest price to tangible book median of 1.88x down from 1.90x at June 2015 and also up (5.8%) from 1.77x at year-end 2014. Similarly, on a price to LTM earnings basis Banks greater than $10 billion in assets reported a 16.9x multiple at July 2015, the same as at June 2015 and up 5.1% from the year-end 2014 level of 16.1x. Banks with assets between $5 billion and $10 billion reported the highest median price to LTM earnings multiple at 17.8x, up from 17.4x at June 2015 and 9% higher than the year-end median of 16.3x. Comparatively, banks less than $500 million in assets reported a median price to tangible book multiple of only 1.07x, up from 1.06x at June 2015 and 1.1% higher than 1.06x at year-end 2014. Banks less than $500 million also reported the lowest median price to LTM earnings multiple at 12.9x at July 2015, down from 15.2x at July 2015 and down 6.9% from the year-end level of 13.9x. From a performance perspective, the banks with less than $500 million had the lowest tangible equity level, while banks $1 billion and larger had the highest LTM ROAA levels (0.90% or higher) and best asset quality (NPAs approximately 1% of lower). The banks with assets $1 billion or less reported the lowest LTM ROAAs (less than 0.82%) and lowest asset quality (NPAs greater than 1.3%).
Mergers & Acquisitions By Region
Bank consolidation returned to a more normalized pace on a year-to-date basis through July 2015 with 153 transactions reported up 0.7% from 152 announced transactions for the January through July 2014 time period. Approximately 50% of the transactions announced in 2015 reported pricing terms, while 59% of the transaction in 2014 reported terms. Median year-to-date pricing through July 2015 was up 4.2% on tangible book, 4.2% on 8% tangible book, 6.0% on LTM earnings, and 8.8% on deposits compared to year-to-date pricing through June 2014. The Southwest Region once again had the highest price to tangible book multiple (1.57x) followed by the Midwest (1.50x). New England reported the highest price to LTM earnings but reported the lowest median ROAA of 0.28% while the Southwest reported a price to LTM earnings of 22.5x while reporting the highest median LTM ROAA (0.66%) and the best asset quality (NPAs/Assets 0.4%). Compared to publicly traded banks, the 2015 M&A transactions were generally lower performing financial institutions with a median ROAA of 0.50%, ROAE of 4.92% and NPAs/Assets of 1.3%.
More information regarding nationwide M&A activity can be found here.