Bank stocks generally increased in value during June 2014 shrugging off a drop in the 10-year Treasury yield, the lack of improvement in overall rates and the downward revision of GDP during the second quarter of 2014. One exception was the SNL Bank index for banks between $500 million and $1 billion, which remained stagnant throughout June. The SNL U.S. Bank Index grew 3.4% in June 2014 edging out the S&P 500 gaining only 1.9%. The largest banks and the smallest banks grew 3% as reflected in the SNL index for banks $1 billion to $5 billion and for banks less than $500 million in size. Bank between $500 million to $1 billion saw their SNL index decline by 0.1% during June.
Public bank prices continued to outperform June 2013 pricing levels with the SNL U.S. Bank Index up 17% since June 2013 as the S&P 500 gained 22% during the same period. The SNL U.S. Bank index for the smallest banks (less than $500 million) posted a 22% gain while the banks $1 billion to $5 billion posted a 21% increase and the banks between $500 million and $1 billion lagged posting an 11% year-over-year increase.
REGIONAL PRICING HIGHLIGHTS
While public bank stocks posted gains during June, they retreated during the first half of 2014. The Midwest region posted the largest decline, dropping from a median 153% of tangible book at December 2013 to a median 141% of tangible book in June followed by the Northeast region declining from a median of 161% of tangible book to a median of 153% of tangible book. All other regions declined 5% or less year-to-date on median tangible book pricing. The Southwest region continued to report the highest pricing with median price to tangible book at 189% and median price to earnings at 17.7x. Strong prices for First Financial Bankshares, Inc. in Abilene, Texas at 386% of tangible book and for Independent Bank Group, Inc. in McKinney, Texas at 340% of June 30, 2014 tangible book no doubt helped the Southwest region. Pricing in the West was just below the Southwest region and reported a median price to tangible book of 154% and median 16.5x earnings. As of the last twelve months ending March 31, 2014, the Southwest and Western banks reported the highest median return on asset levels (0.97% and 1.05%, respectively) and maintained the highest tangible equity levels (9.99% and 10.52%, respectively). The Southeast region reported the lowest median price to tangible book pricing year-to-date at 135.7% and the Midwest banks reported the lowest median price to earnings multiple of 14x. The Southeast region reported the lowest median return on average assets over the last twelve months (0.75%) and highest median non-performing asset to asset level (1.73%) among the regions as of March 31, 2014.
PRICING BY SIZE
Looking at public bank pricing based on the size of institutions, banks under $1 billion saw an improvement in pricing multiples while banks over $1 billion reported a decline. Year-to-date through June 2014, banks between $5 billion and $10 billion reported a 10% decline on both median price to tangible book and price to earnings levels, declining from 210.1% to 189.2% of tangible book and from 18.5x to 16.6x earnings, but maintained the highest median pricing overall. The 41 public banks between $5 billion and $10 billion reported the highest earnings, reporting a median return on average assets of 1% on a last twelve month basis ending March 31, 2014 and the next best asset quality as measured by median non-performing assets to assets (1.20%). Banks greater than $10 billion reported the next highest pricing with a median price to tangible book of 177% (down 4% from year-end 2013) and a median price to earnings multiple 16.6x (down 1% from year-end 2013). This group also had the best median asset quality (NPA/assets 1.01%). Public banks under $1 billion generally reported the lowest median pricing levels, lowest median return on average assets and highest median non-performing assets despite reporting the largest increase in median pricing year-to-date.
More information regarding nationwide M&A activity can be found here.