In August 2016, public bank stocks gained territory for the second straight month and outperformed the broader market as investors remained confident after the release of strong industry performance, strong economic data and positive comments from the FOMC. The FDIC reported that expanding loan portfolios generated higher net interest income lifting earnings for FDIC insured banks in the second quarter of 2016. Year over year, 60% of banks reported higher quarterly earnings compared with 2015. The U.S. Labor Department announced that total nonfarm employment climbed by 255,000 in July, beating the consensus estimates which called for the creation of 185,000 jobs. Average hourly earnings on private, nonfarm payrolls increased by 8 cents in July to $25.69, and has now risen 2.6% this year. These numbers were strong enough to fuel optimism that the U.S. economy and labor market are back on track. Further, private sector employment increased by 177,000 jobs in August according to the latest ADP National Employment Report. In another strong economic data release, sales of new single-family homes in the U.S. were at a seasonally adjusted annual rate of 654,000 in July, up 12.4% from the revised June rate of 582,000 and 31.3% above the July 2015 estimate of 498,000, as reported by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, leading one analyst to call it a “blow-out” number, noting it is more reason to believe the Fed should raise interest rates again.

In other news, the FOMC decided to keep the federal funds rate between 25 – 50 basis points. However, Federal Reserve Chair Janet Yellen was quoted as saying the case for an increase in the federal funds rate has strengthened in recent months. Those comments were followed by an appearance by Federal Reserve Vice Chairman Stanley Fischer, who noted broad economic improvement and said the August unemployment report would be a key factor as the Federal Open Market Committee weighs interest rates at its September meeting, leading some to believe the Fed is signaling a hike by the end of the year.

M&A pricing was down year-to-date through August compared to year-to-date pricing through August 2015 on slightly lower volume (see chart below).

The SNL Bank Index increased 6.9% in August, and outperformed the S&P 500 which decreased 0.1% as banks between $1 billion and $5 billion posted the largest increase of 4.9%. Banks below $500 million posted gains in August, increasing 2.0%, while banks between $500 million and $1 billion gained 1.6% during the month.

Over the three month period ending August 2016, the SNL Bank Index increased 3.2% while the S&P 500 increased 3.5%. The trend differed over the prior twelve months as the SNL Bank Index increased 0.9% while the S&P 500 increased 10.1%.


The West region saw the largest increase in median price to tangible book (8.5%) in August and was followed by the Southwest (5.5%). The increase in oil prices in August helped boost pricing growth in the Southwest region, which is heavily tied to the energy sector and increased 5.5% after posting a decrease in July. After growing the largest of any region in August in price to tangible book, the West remained the highest priced region for the fifth consecutive month and is now priced 5.2% higher than the second highest region.

At 1.62x 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 (3.78%) on a LTM basis. The Mid-Atlantic region reported the lowest median tangible book price of any region at 1.37x, and was up 2.6% from July 2016, while the Southeast increased the least of any region at 0.5% to 1.48x book. The Midwest and Southwest reported median tangible book pricing of 1.48x and 1.52x (up 3.0% and 5.5%, respectively from July 2016) while the Northeast reported a median 1.54x, up 3.7% from July 2016. Pricing was generally up in July as no regions reported a loss.

On a median price to earnings basis, the Southeast reported the highest pricing at 16.3x LTM earnings while the Southwest reported 16.2x LTM earnings, followed by the Mid-Atlantic (15.5x), Northeast (15.2x) and West (15.1x) with the Midwest at a median 14.7x LTM earnings on the low end. All of the regions showed an increase in price to earnings since June 2016, increasing 1.9% on average, while the Midwest showed the largest increase on a price to earnings basis, up 3.9% from June 2016.


Pricing continues to be proportional to asset size and earnings, as only the smallest sized groups dipped on pricing in August. The banks between $5 billion and $10 billion had a median price of 2.10x tangible book (up 8.2% from July 2016), remaining the highest priced group, followed by banks greater than $10 billion at 1.71x (up 5.6% from July 2016), while the two smallest sized groups averaged a 1.08x multiple. The smallest banks, those below $500 million, were down 0.1% in August to 1.11x, while banks between $500 million and $1 billion remained the lowest priced group and decreased in the month of August (0.2%) to 1.06x. Mid-sized banks, those between $1 billion and $5 billion, increased 1.9% since July 2016 and were priced at 1.47x tangible book.

On a median price to LTM earnings basis, banks with assets between $5 billion and $10 billion reported the highest multiple of 18.0x and were up 7.3% since July 2016 on the highest median ROAA (1.05%), outpacing the banks with assets less than $500 million with a 17.8x price to LTM earnings multiple (up 1.9% since July 2016), on the highest median net interest margin (3.67%). The largest banks reported a median price to LTM earnings of 16.2x, and reported the second highest median ROAA (0.96%). Banks between $500 million and $1 billion reported the lowest pricing at 14.2x earnings and highest median tangible equity to tangible assets (9.71%), while midsized banks between $1 billion to $5 billion posted mid-range pricing at 15.9x LTM earnings on the fourth highest median LTM net interest margins of 3.60% and median ROAA of 0.90%.

Mergers & Acquisitions by Region

Bank consolidation continued at a slightly slower pace on a year-to-date basis through August 2016 with 155 transactions compared to 167 reported through August 2015. Approximately 57% of the transactions announced year-to-date through August 2016 reported pricing terms, while 53% of the transactions through August 2015 reported terms. Median year-to-date pricing through August 2016 remained down across the board at a 4.7% decrease on tangible book (1.33x), 3.4% decrease on 8% tangible book (1.42x), 17.2% decrease on LTM earnings (18.6x), and 2.5% decrease on deposits (16.3%) compared to year-to-date pricing through August 2015. Only two transactions were reported in the Southwest Region with pricing (which typically has the highest price to tangible book multiples) which had a median price to tangible book multiple of 1.51x on tangible equity to assets of 11.7%, NPAs/Assets of 0.3% and ROAA of 0.92%. The East–New England and South regions had the next highest median price to tangible book multiples (1.39x and 1.38x, respectively). The West region reported the highest price to LTM earnings (22.0x) on a median ROAA of 0.57% (third lowest of the regions). Banks selling in the Midwest reported strong median tangible equity at 10.6% of assets and lower median price to tangible book multiples (1.33x). Twenty-nine transactions were reported in North Central year-to-date with only four disclosing pricing (median 1.28x tangible book).

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

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