Public bank stocks had their second consecutive positive month of the year in April and outperformed the broader market as investors are beginning to feel more optimistic about the future. Oil prices, which have driven much of the market volatility in 2016, gained ground in April. In addition to increased confidence, first quarter earnings reports for many of the major financial companies reported better than expected earnings, as fears surrounding exposure to European banks and energy in the U.S. did not play out. The Federal Open Market Committee announced it will keep the target range of its federal funds rate between 25 – 50 basis points, stating a range of recent indicators point to additional strengthening of the labor market since their last meeting. They acknowledged the slowdown in household spending, but added that real income growth was strong and consumer sentiment is high. Further, the FOMC removed the reference to global economic and financial developments posing risks, leading some to believe rate hikes are still possible for 2016. The Bank of Japan decided not to expand its stimulus efforts at its April meeting, an unexpected decision which may have been a catalyst for investors to pause. Markets were further boosted by employment figures as the U.S. Labor Department announced nonfarm payroll employment increased by 215,000 in March, exceeding the estimate of 210,000, while the unemployment rate increased slightly to 5%. M&A pricing was down year-to-date through April compared to year-to-date pricing through April 2015 on slightly lower volume (see chart below).

The SNL Bank Index jumped 6.6% in April, and outperformed the S&P 500 which increased 0.3% as banks between $1 billion and $5 billion posted the largest increase of 4.1%. The SNL Bank Index for banks less than $500 million gained the least at 3.1%, while banks between $500 million and $1 billion gained 3.5% during the month.

Over the three month period ending April 2016, the SNL Bank Index increased 6.2% while the S&P 500 increased 6.4%. The trend differed over the prior twelve months as the SNL Bank Index declined 4.9% while the S&P 500 declined only 1.0%.


The Southeast region saw the largest increase in median price to tangible book (5.4%) in April and was followed by the West (4%). The increase in oil prices in April contributed to the Southwest region’s increase in tangible book pricing (3.5%), moving it ahead of the Mid-Atlantic region as the lowest priced region, as the Southwest is heavily tied to the energy sector. The only region that did not increase in pricing in March was the Northeast, losing its position as the highest price to tangible book pricing to the West, based on the highest net interest margin and ROAA.

At 1.57x tangible book, the West region claimed the highest median price among all regions as the region reported the strongest median last twelve month (“LTM”) ROAA (1.03%) and the highest median net interest margin (3.76%) on a LTM basis. The Mid-Atlantic region reported the lowest median tangible book price of any region at 1.29x, and was up only 0.2% from March 2016, while the Southwest increased 3.5% to 1.33x book, moving out of the lowest priced region. The Midwest and Southeast reported median tangible book pricing of 1.45x and 1.49x (up 1.5% and 5.4%, respectively from March 2016) while the Northeast reported a median 1.47x, but was the only region to lose ground in April (down 3.0% from March 2016). While pricing generally improved in April, median prices are still down across all regions except the Southeast since December 2015.

On a median price to earnings basis, the Southeast reported the highest pricing at 16.0x LTM earnings while the Southwest reported 15.3x LTM earnings, followed by the West (15.2x), Mid-Atlantic (15.0x) and Northeast (15.0x) with the Midwest at a median 13.9x LTM earnings on the low end. Three of the regions showed a decrease in price to earnings since March 2016, decreasing 1.4% on average, while the Southwest showed the largest increase on a price to earnings basis, up 14.7% from March 2016. The West continued to report the highest median LTM net interest margin (3.76%) followed by the Southeast region (3.66%) which continued to report the highest NPAs/Assets (1.08%). The West reported the highest median LTM ROAA at 1.03% followed by the Midwest region at 0.97% and Southwest at 0.95%. The Southwest region maintained a high premium during the last downturn due to strong oil and gas prices, but has since seen their values significantly cut during the current fall in oil prices. However, pricing in the Southwest has improved over the past few months on both price to tangible book and price to earnings with oil prices moving up and strong median earnings, strong loan to deposits at 92.2% and a net interest margin of 3.62%, the third highest.


Pricing continues to be proportional to asset size and earnings with the disparity increasing only as the two largest sized bank groups gained the most on pricing in April. The banks between $5 billion and $10 billion had a median price of 1.96x tangible book followed by banks greater than $10 billion at 1.64x, while the two smallest sized groups averaged a 1.03x multiple. The smallest banks, those below $500 million, continued to have the lowest price to tangible book multiple, up 2.1% in April to 1.01x, while banks between $5 billion and $10 billion remained the highest priced group and increased in the month of April (5.3%) to 1.96x. Mid-sized banks, those between $1 billion and $5 billion, increased 2.9% since March 2016 and were priced at 1.44x tangible book. Banks over $10 billion gained 5.4% in April to 1.64x, while banks between $500 million and $1 billion reported a price to tangible book multiple at 1.04x up 0.2% since March 2016.

On a median price to LTM earnings basis, banks with assets between $5 billion and $10 billion once again reported the highest multiple of 16.2x, up 1.8% from March 2016, on the highest median ROAA (1.03%) on strong median LTM net interest margin (3.67%) and lowest NPAs/Assets (0.69%). The largest banks reported a median price to LTM earnings of 15.7x, up 14.0% (the largest increase of any group) from March 2016 and reported the second highest median ROAA (0.97%). Banks with less than $500 million reported the third highest price to earnings ratio of 15.3x (down 0.2% since March 2016) and the lowest median ROAA (0.39%). Banks between $500 million and $1 billion reported the lowest pricing at 12.8x earnings and highest median LTM net interest margin (3.69%), while midsized banks between $1 billion to $5 billion posted mid-range pricing at 15.1x LTM earnings on the third highest median LTM net interest margins of 3.63% and median ROAA of 0.92%.

Mergers & Acquisitions by Region

Bank consolidation continued at a slightly slower pace on a year-to-date basis through April 2016 with 78 transactions compared to 82 reported through April 2015. Approximately 60% of the transactions announced year-to-date through April 2016 reported pricing terms, while 52% of the transactions through April 2015 reported terms. Median year-to-date pricing through April 2016 was down across the board at a 12.4% decrease on tangible book (1.30x), 14.5% decrease on 8% tangible book (1.38x), 16.4% decrease on LTM earnings (19.4x), and 8.4% decrease on deposits (16.0%) compared to year-to-date pricing through April 2015. Only one transaction was reported in the Southwest Region (which typically has the highest price to tangible book multiples) which had a price to tangible book multiple of 1.74x on tangible equity to assets of 11.7%, NPAs/Assets of 0.8% and ROAA of 0.92%. The West and East–New England regions had the next highest median price to tangible book multiples (1.35x and 1.33x, respectively). The East-New England region reported the highest price to LTM earnings (23.6x) on a median ROAA of 0.45%. Banks selling in the Midwest reported strong median tangible equity at 10.7% of assets and lower median tangible book multiples (1.16x). Seventeen transactions were reported in North Central with only three disclosing pricing (median 0.93x tangible book).

More information regarding nationwide M&A activity can be found here.

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