Volatility was the theme during October as bank stock prices mirrored the broader equities market. Bank stocks fell to a mid month low primarily over economic concerns in Europe and Ebola then rebounded to a month-end high as the U.S. economy continued to report improvements and the Federal Reserve confirmed the end of quantitative easing. The SNL Bank Index improved 2.2%, in line with the S&P 500 growing 2.3%. Banks between $1 billion and $5 billion stood out increasing 8% as pricing jumped the last three days of the month. The SNL Bank Index for banks between $500 million and $1 billion kept pace with the overall market growing 2.3%, while the index for banks below $500 million remained relatively flat moving up 0.5% during the month.
A review of the past twelve months, shows significant volatility from October 2013 through June 2014 that generally leveled off during the summer then returned in September and October 2014. Midyear, banks $500 million began tracking with the SNL Index and the S&P 500, while banks between $500 million and $5 billion tracked lower. By October, the SNL Index for banks $1 billion to $5 billion nearly caught up with the broader market. The SNL index for banks less than $500 million grew 10.9%, falling below the overall SNL Bank Index growth of 15.8% and S&P 500 growth of 14.9% from October 2013 through October 2014. Banks between $500 million and $1 billion improved 6.3% and banks between $1 billion and $5 billion improved 0.3%.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, all regions rebounded during the month of October but were mixed on a year-to-date basis with most regions lower, except the Southeast which edged up 1.7% and the West which remained flat on a price to tangible book basis. On a price to last twelve months (LTM) earnings basis, the Southwest region was the only sector to show improvement and it was significant, ending October at 19x earnings, up from approximately 17x LTM earnings at year-end 2013.
The Southwest continued to report the highest price to tangible book multiple (1.83x) and highest price to earnings (19x) and reported an improvement in overall earnings, net interest margin and asset quality on a year-to-date basis.
Pricing in the West followed with a price to tangible book multiple of 1.61x and a price to LTM earnings of 16x, the same price to earnings as the Southeast region which reported the lowest return on assets.
The Northeast region came in third with a price to tangible book of 1.54x and a price to LTM earnings of 16x. All other regions reported a median price to tangible book multiple below 1.45x with the Mid-Atlantic states reporting the lowest price to tangible book multiple of 1.36x and an LTM price to earnings of below 15x.
PRICING BY SIZE
When looking at public bank pricing by size of institution, banks over $1 billion continued to report the highest prices on tangible book and LTM earnings based on strong earnings and asset quality. However, on a year-to-date basis, the SNL Index for banks over $5 billion saw a notable drop in value. Banks between $5 billion and $10 billion saw price to tangible book drop 22% to 184% and banks over $10 billion saw a 17% decline to 168% of tangible book while price to LTM earnings declined 1.5% and 0.5%, respectively. Banks between $1 billion and $5 billion generally remained fairly flat on a year-to-date basis.
The smaller financial institutions, those below $1 billion, had price to tangible book pricing multiples just above tangible book value and also reported the lower earnings and highest non-performing asset levels among banks by size.
More information regarding nationwide M&A activity can be found here.