Chris Noon

In the month of April the SNL Bank Index outperformed the S&P 500, with an increase of 9.3% compared to 3.9% for the S&P 500. Bank stocks and the broader market traded around the both domestic and foreign economic reports, first quarter earnings season, and a more favorable Fed outlook.

Both indexes stayed in the positive through the entirety of the month. Healthy economic reports for the U.S. confirmed that inflation is at a low, preferable level, while positive reports out of China have helped sooth recent concern about the state of its economy. As tariffs are always on the radar, investors remained confident a deal will get done between the two nations. Big bank earnings reported fairly well in April with most beating expectations, while Q1 reporting companies have grown earnings roughly 5% on average, also beating expectations. The SNL Bank index rallied significantly since its poor end to March.

In other related news, the White House was on the verge of nominating two additional appointees to the Federal Reserve Board, Herman Cain and Stephen Moore. Since the announcement, Herman Cain voluntarily withdrew his consideration. Moore is considered a conservative economist and was also a Trump campaign advisor, which may raise concerns about potential blurred lines between the independence of the Fed and the Executive branch.

In economic news, data from the U.S. Department of Labor reported that nonfarm payrolls increased by 263,000 in April, beating the consensus estimates of 181,000. The unemployment rate declined by 0.2% to 3.6% while the average hourly earnings for employees increased by 6 cents, or 0.2% month over month. In March, U.S. existing-home sales fell 4.9% from February. Sales are 5.4% below the levels from a year ago, according to the National Association of Realtors. The median existing-home price for all housing types was $259,400, up 3.8% from the prior year.

Bank M&A pricing was slightly down in April 2019 compared to April 2018 on the same number of transactions (see chart below).

The SNL Bank Index showed an overall increase through the month rising 9.3%, while the S&P 500 increased by 3.9% during the month. The SNL Bank Index was up in all size groups as banks between $1 billion and $5 billion increased 4.3%, banks between $500 million and $1 billion increased 0.7%, and banks below $500 million rose 3.1%.

Over the three month period ending April 2019, the SNL Bank Index increased 6.4% while the S&P 500 gained 8.9%. Over the prior twelve months, the SNL Bank Index decreased 2.3% while the S&P 500 increased 11.2%. Banks between $500 million and $1 billion decreased 1.9%, while banks with assets less than $500 million decreased 5.6%, and banks between $1 billion and $5 billion decreased 8.2%.


In April, pricing was up across all regions. The Southwest experienced the second largest increase since March of 6.0%, and remained the highest priced region on a price to tangible book multiple of 176.2%. The West remained the second highest priced region at a 166.8% price to tangible book after having increased 6.2% in the month. The Southeast and Mid-Atlantic regions increased 2.6% and 2.2% in April to multiples of 159.3% and 146.9%, respectively, with the Mid-Atlantic being the lowest priced region on a price to tangible book multiple. The Midwest and Northeast increased 1.4% and 6.0%, respectively, to a price to tangible book of 157.8% and 164.3%, respectively. The Northeast became the second highest priced region, and the Midwest region sits as the second lowest priced region.

Pricing for public banks in the Southwest was supported by strong earnings (ROAA of 1.27%), Net Interest Margin (3.78%), and asset quality (NPAs/Assets of 0.44%). The Southeast was the third lowest priced region, and had the second weakest loan demand (Loan/Deposits of 89.0%), and middle of the road asset quality (NPAs/Assets of 0.54%), profitability (ROAA of 1.19%) and NIM (3.66%). The Northeast region’s asset quality remained the group’s worst (NPAs/Assets of 0.81%) and the region fell to the second highest loan demand (Loan/Deposits of 94.9%). The Midwest region remained at the third strongest profitability with an ROAA of 1.23% and a third highest Net Interest Margin of 3.73%. The West became the most profitable region with an ROAA of 1.28% and had the best Net Interest Margin of 4.00%, the strongest asset quality (NPAs/Assets 0.36%), and improving loan demand with Loans/Deposits of 90.2%. The lowest priced region, the Mid-Atlantic, had the second lowest profitability with an ROAA of 1.10%, the second weakest asset quality (NPAs/Assets of 0.70%), but strong loan demand with Loans/Deposits of 95.8%.

On a median price to earnings basis, pricing increased across each of the regions. The Northeast region increased 5.5%, and is now the third lowest priced region with a price to earnings multiple of 13.0x. The Southeast region remained the second highest priced region with a price to earnings multiple of 13.7x after an increase of 7.0% in April. The Southwest region saw a price increase of 4.4% in April to a price to earnings multiple of 14.6x, maintaining its position as the highest priced of the regions. The Mid-Atlantic increased by 2.3% in April with a price to earnings multiple of 12.7x (tied for lowest in the group). The West increased 2.9%, with a 13.1x price to earnings multiple, while the Midwest experienced an increase of 0.6% to a 12.7x price to earnings multiple, tying the lowest of the regions.


Size continues to impact bank stock prices. Financial institutions with total assets greater than $1 billion consistently report pricing approximately 50% higher median price to tangible book pricing than their peers with total assets less than $1 billion. In the month of April, that differential was 33.1% higher for the peers with assets greater than $1 billion on a price to tangible book basis. The highest priced asset class is still the group with assets greater than $10 billion, which experienced an increase in pricing of 5.1% to a 181.0% price to tangible book multiple, ahead of the 175.3% multiple of the banks with between $5 billion and $10 billion after increasing 1.9%. The group with assets from $1 billion to $5 billion saw a decrease in pricing of 0.9% to a price to tangible book multiple of 144.1%. The group with assets from $500 million to $1 billion and the group with less than $500 million (which constitutes only five companies) ended the month with price to tangible book multiples of 128.4% and 135.1%, respectively, with pricing for the $500 million to $1 billion group decreasing 1.9% while the group less than $500 million increased 6.4%. On a price to LTM earnings basis, the largest bank group (over $10 billion) saw the second largest increase in pricing of 5.1%. The group with assets between $500 million and $1 billion saw a decrease in its price to earnings multiple, down 4.7% to 13.1x and is tied for the second lowest priced group. The two groups with assets between $1 billion and $5 billion and between $5 billion and $10 billion saw increases in pricing of 2.8% and 5.4% to price to earnings multiples of 13.1x and 13.7x, respectively. The highest priced was the group with less than $500 million, decreasing 11.3% to a 14.4x price to earnings multiple.

Financial institutions under $1 billion reported much lower LTM ROAA (average of medians 0.92%) and loan demand (average Loans/Deposits of 90.0%) than institutions with assets over $1 billion (average of median LTM ROAA 1.23% and Loans/Deposits 91.5%).

Mergers & Acquisitions by Region

Bank consolidation was down through April 2019 as compared to April 2018 with 59 transactions announced through April 2019 (27 transactions with terms) compared to 75 transactions (38 with terms) through April 2018. Median pricing through 2019 was lower than 2018 on a price to tangible book decrease of 17.4% (median 1.58x), a price to 8% tangible book decrease of 21.7% (1.62x), a decrease of price to deposits of 21.4% (17.8%), and a price to earnings basis with a 39.8% decrease on LTM earnings (15.1x).

The South region continues to have the highest number of transactions and number of transactions with terms with 15 deals through April of which 8 reported terms. Transactions in the South reported the third lowest price to tangible book of the group with a multiple of 154%, the third lowest price to 8% tangible book (158%), and lowest price to earnings (14.3x) and the fourth highest price to deposits at 18.1%. The West region has reported 5 deals in 2019 with 3 of them reporting terms, and reported the highest pricing on a price to tangible book basis, second highest price to 8% tangible book, and highest price to deposits (216%, 221%, and 30.6%, respectively). The Midwest and North Central had 13 and 10 transactions, respectively, in 2019 (6 and 3 with terms, respectively), with a 139% and 174% price to tangible book, respectively. The East – New England region logged 8 transactions (4 with terms) with a price to tangible book of 145% and the highest price to deposits of 16.7%. The Southwest had 8 deals through April, and 3 with deal terms.

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