In January 2018, bank stock prices climbed 6.9% driven largely by banks with assets greater than $5 billion. Banks less than $500 million, banks between $500 million and $1 billion, and the banks between $1 billion and $5 billion all had price growth in January, but they were outperformed by the SNL Bank index and the S&P 500 which was up 5.6% in the month. Bank stocks and the broader market continued to react to news and expectations surrounding the recent tax-reform, the beginning of earnings season, increasing Treasury yields, and the government shutdown.

Bank stocks maintained upward momentum early in the month on uncertainty and hope about the effects of the new tax reform, strong forward guidance forecasts, and minutes from the December Federal Open Markets Committee (“FOMC”) meeting which showed that Federal Reserve policymakers continue to favor gradually raising rates although some voting members of the FOMC believe that three rate hikes in 2018 might be too aggressive. Bank stocks, along with the greater market, continued to trend upward mid-month as the 10-year treasury yield continued climb. The markets did not have much reaction prior to the government shutdown on January 19th, but had a positive reaction on Monday, January 22nd, as the government shutdown ended in its first working day as Democrats in the U.S. Senate agreed to support stopgap funding for the government after receiving assurance that Republicans would work with them on immigration. The markets continued positive momentum following the shutdown on the confirmation of the next Federal Reserve Chairman, Jerome Powell, who will take over for current chair, Janet Yellen, whose term ends on February 3rd. As earnings season began, shares dipped late in the month ahead of President Donald Trump’s State of the Union Address and a release from the FOMC in which it was expected it would keep interest rates flat but could raise rates again in March. Overall markets ended the month with a downward tick, but financial sector stocks slipped less than the general market as rising inflation expectations have driven up yields on the 10-year Treasury which steepened the yield curve and helped bank stocks outperform other industries.

Along with the confirmation of soon to be Federal Reserve Chairman Jerome Powell, the Committee on Banking, Housing, and Urban Affairs also confirmed three of President Donald Trump’s picks to financial regulatory agencies. Jelena McWilliams was confirmed to head the Federal Deposit Insurance Corp. (“FDIC”). McWilliams said she would focus on reversing the trend of community bank consolidation. Marvin Goodfriend was picked to fill a vacancy on the Fed Board of Governors and Thomas Workman was nominated to become a member of the Financial Stability Oversight Council.

In economic news, data from the U.S. Department of Labor reported that nonfarm payrolls increased by 148,000 in December. The unemployment rate, meanwhile, remained 4.1%, in line with expectations. In December, existing-home sales slipped to a seasonally adjusted annual rate of 5.57 million. Sales were 1.1% higher than a year earlier according to the National Association of Realtors, and the median existing-home price was up 5.8% year over year to $246,800. Average Hourly Earnings were up year-over-year at a 2.5% growth pace.

Bank M&A pricing was up significantly in January 2018 compared to January 2017 on a fewer number of transactions (see chart below).

The SNL Bank Index increased 6.9% in January and outperformed the S&P 500 which gained 5.6% during the month. While banks below $500 million increased the least at 0.7%, banks between $500 million and $1 billion posted an increase of 3.4%, and banks between $1 billion and $5 billion gained 1.9% during the month.

Over the three month period ending January 2018, the SNL Bank Index gained 12.1% while the S&P 500 increased by only 9.7%. Over the prior twelve months, the SNL Bank Index slightly outperformed the overall market, as it increased 24.7% while the S&P 500 increased 23.9%.


Half of the regions reported lower price to tangible book multiples while pricing in the Southwest grew at the fastest pace in the month at 9.0% to 224.9% price to tangible book. The Northeast region reported the second highest pricing by region of 196.4% after having the second greatest increase in pricing in the month of 3.4%. The West region also reported an increase in median price to tangible book of 1.1% in the month to 192.6%. Pricing in the Southeast region was down 1.2% in the month of January from the second highest priced region in December to the fourth in January at 191.1% price to tangible book. The Midwest saw the largest decrease in pricing in the month with a decrease of 2.3% down to 187.0% while the Mid-Atlantic region remained relatively flat as the lowest priced region on a price to tangible book basis at 174.9%.

Strong pricing among the public banks in the Southwest region was supported by strong earnings (ROAA 0.96%), Net Interest Margin (3.62%) and the second strongest asset quality (NPAs/Assets of 0.65%). The Southeast pricing increased in the month as the Net Interest Margin increased to the second highest at 3.63% while the asset quality decreased in the month (NPAs/Assets of 0.89%). Loan demand remained strong in the Northeast region (Loan/Deposits of 94.7%), second to only the Mid-Atlantic region (Loan/Deposits of 97.5%) while the Net Interest Margin in the Northeast remained the weakest at 3.27% and ROAA remained seconded lowest at 0.80%. In the West, ROAA decreased to the second most profitable region (ROAA of 0.95%), Net Interest Margin remained the highest (3.78%), and asset quality (NPAs/Assets of 0.73%) was the third highest. The Mid-Atlantic remained the lowest priced region on the weakest earnings (ROAA 0.79%) and the second weakest Net Interest Margin (3.47%) behind the Northeast but reported the strongest loan demand with Loans/Deposits of 97.5%.

On a median price to earnings basis, all regions increased pricing in January with the Midwest increasing the least, remaining the lowest priced region at 19.3x. The Southwest region had the largest increase in pricing in the month, remaining the highest priced region at 23.0x. The Southeast was the second highest priced region with a price to LTM earnings of 22.7x while the West, Northeast and Mid-Atlantic all saw increases in the month between 11.3 and 12.0%.


Size matters in 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 January that differential was approximately 47% higher median price to tangible book pricing for the peers with assets greater than $1 billion. During January, the pricing for the three groups with total assets over $1 billion increased their median tangible book pricing by 2.8% averaging 212.9%. The increase was largely in part to the largest asset class (>$10 billion) as its pricing increased the most in the month by 8.1%. The highest priced asset class remained the group with assets between $5 billion and $10 billion which remained flat in the month of January at 231.4% price to tangible book. The group with assets less than $500 million saw the largest decrease in price to tangible book in the month of 3.6% to 146.2% while the group with assets between $500 million and $1 billion remained the lowest priced group decreasing 1.4% in the month to 144.3%. On a price to LTM earnings basis, the smallest banks (less than $500 million) were the only group to decrease in pricing as they reported the lowest price to earnings multiple (19.6x) and they reported much lower earnings (ROAA of 0.48%). The three groups with assets over $1 billion reported an increase in pricing at an average median price to earnings of 21.0x while reporting median ROAAs between 0.84% and 1.00%.

Financial institutions under $1 billion reported much lower LTM ROAA (average of medians 0.55%) and lower asset quality (1.01% average of median NPAs/Assets) than institutions with assets over $1 billion (average median LTM ROAA 0.94% and NPAs/Assets 0.69%).

Mergers & Acquisitions by Region

Bank consolidation started 2018 at a slightly slower pace as compared to January 2017 with 16 transactions announced in January 2018 compared to 23 in January 2017. However, median pricing in 2018 was substantially higher on a price to tangible book increase of 19.0% (median 1.94x), on a price to 8% tangible book increase of 11.4% (1.93x), on an increase of price to deposits of 2.6% (22.6%), but lower on a price to earnings basis with a 5.8% decrease on LTM earnings (20.2x). Higher prices in 2018 for merger and acquisitions are the direct result of higher public bank stock prices.

The South region reported the highest price to tangible book multiple at 2.20x (2 deals with terms). The West, Southwest, and East – New England all had only one transaction a piece with terms and they all priced similarly and slightly lower than the two deals in the South region with a price to tangible book range of 1.92x to 2.10x for the three regions. The West region had the highest earnings (LTM ROAA of 1.77%) which provided for a 2.10x price to tangible book while the Southwest had the best asset quality (NPAs/Assets of 0.00%) leading to a price to tangible book of 1.92x. The Midwest region had four transactions in the month of January, all with terms, which left the region as the lowest price in the month on price to tangible book of 1.42x while the North Central region had four transactions as well but none of them with terms.

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