Chris Noon

In the month of January the SNL Bank Index outperformed the S&P 500, increasing 11.0% while the S&P 500 increased 7.9%. Bank stocks and the broader market traded around Fed reassurance, big bank earnings reports, and strong jobs reports.

Indexes rose throughout most of the month, with bank stocks accelerating mid-month. The market began the month reacting to a December jobs and wage report that was much more unfavorable than expected, followed by rhetoric from Fed Chairman, Jerome Powell, reiterating his confidence in the economy and suggesting interest rate hikes could go on pause. Mid-month, big bank earnings were met with favorably allowing the SNL Bank index to separate higher than the S&P 500. The month ended slowly in the way of major events, but strong earnings reports and the expectation of another favorable jobs report kept the market steady.

In other related news, Mike Crapo, Senate Banking Committee Chairman, released a proposal that would release government-sponsored-entities from federal control. Under Crapo’s plan, the GSEs would be allowed to fail like any other company in the private sector. The FHFA would have the power to establish leverage, risk-based capital, liquidity, risk management, a resolution plan, concentration limits, and stress testing requirements. In addition, the agency would have broad authority to require, approve, and create credit risk transfer standards.

In economic news, data from the U.S. Department of Labor reported that nonfarm payrolls increased by 304,000 in January, greatly above the consensus estimates of 165,000. The unemployment rate rose to 4.0% while the average hourly earnings for employees increased by three cents, or 0.1% month over month. In December, U.S. existing-home sales fell 6.4% from November. Sales are 10.3% below the levels from a year ago, according to the National Association of Realtors. The median existing-home price for all housing types was $253,600, up 2.9% from the prior year.

Bank M&A pricing was slightly down in January 2019 compared to January 2018 on a higher number of transactions (see chart below).

The SNL Bank Index showed an overall increase through the month increasing 11.0%, outperforming the S&P 500 which was up 7.9% during the month. The SNL Bank Index was up in all size groups as banks between $1 billion and $5 billion increased 5.5%, banks between $500 million and $1 billion increased 4.0%, and banks below $500 million gained 4.2%.

Over the three month period ending January 2019, the SNL Bank Index decreased 2.6% while the S&P 500 remained essentially flat with a small loss of 0.3%. Over the prior twelve months, the SNL Bank Index decreased 15.4% and the S&P 500 decreased 4.2%. Banks between $500 million and $1 billion decreased by 4.3%, while banks with less than $500 million decreased 11.0%, and banks between $1 billion and $5 billion decreased 10.6%.


In January, pricing was down across all regions. The Southwest experienced the smallest decrease in January of 0.7%, and remained the second highest priced region on a price to tangible book multiple of 157.3%. The West remained the highest priced region at a 158.3% price to tangible book after having decreasing 1.0% in the month. The Southeast and Mid-Atlantic regions decreased 4.8% and 4.7% in January to multiples of 137.7% and 134.3%, respectively, with the Mid-Atlantic being the lowest priced region on a price to tangible book multiple. The Midwest and Northeast each decreased 3.8% in the month to a price to tangible book of 146.6% and 150.9%, respectively. The Northeast remained the third highest priced region, followed by the Midwest region.

Pricing for public banks in the Southwest was supported by strong earnings (ROAA of 1.28%), Net Interest Margin (3.78%), and asset quality (NPAs/Assets of 0.50%). The Southeast was the second lowest priced region, and had the second weakest loan demand (Loan/Deposits of 91.2%), the weakest asset quality (NPAs/Assets of 0.75%) and middle of the road on profitability (ROAA of 1.21%) and NIM (3.67%). The Northeast region’s asset quality has improved (NPAs/Assets 0.55%) and the region kept the highest loan demand (Loan/Deposits of 97.5%). The Midwest region fell to third strongest profitability with an ROAA of 1.23% and a third highest Net Interest Margin of 3.72%. The West rose to the second most profitable region with an ROAA of 1.27% and had the best Net Interest Margin of 3.95%, the strongest asset quality (NPAs/Assets 0.36%), and improving loan demand with Loans/Deposits of 91.6%. The lowest priced region, the Mid-Atlantic, had the second lowest profitability with an ROAA of 1.09%, the third weakest asset quality (NPAs/Assets 0.56%), but strong loan demand with Loans/Deposits of 96.5%.

On a median price to earnings basis, pricing decreased across each of the regions. The Northeast region decreased 14.9%, and is now the second lowest priced region with a price to earnings multiple of 11.9x. The Southeast region fell from the highest priced region to tie for third with a price to earnings multiple of 12.0x with a decrease of 19.5% in January. The Southwest region saw a price decrease of 9.7% in January to a price to earnings multiple of 13.4x, maintaining its position as the highest priced of the regions. The Mid-Atlantic decreased the most at 21.2% in January with a price to earnings multiple of 11.7x (lowest in the group). The West decreased 12.5%, with a 12.1x price to earnings multiple, while the Midwest experienced a decrease of 8.9% to a 12.0x price to earnings multiple, improving to the third highest (tied) 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 January, that differential was 45.7% higher for the peers with assets greater than $1 billion on a price to tangible book basis. During January, pricing for the three groups with total assets over $1 billion increased by 1.4% on a median price to tangible book basis to a price to tangible book median of 162.5% and remained the second highest priced group. The highest priced asset class remained the group with assets between $5 billion and $10 billion, which experienced a decrease in pricing of 4.6% to a 166.7% price to tangible book multiple. The group with assets from $1 billion to $5 billion saw a decrease in pricing of 5.0% to a price to tangible book multiple of 137.7%. 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 122.8% and 100.2%, respectively, with pricing for the $500 million to $1 billion group decreasing 2.3% while the group less than $500 million decreased 2.2%. On a price to LTM earnings basis, the largest bank group (over $10 billion) saw a decrease in pricing of 8.3%. The group with assets between $500 million and $1 billion also decreased its price to earnings multiple, down 14.1% to 14.5x yet is still the second highest priced group. The two groups with assets between $1 billion and $5 billion and between $5 billion and $10 billion saw decreases in pricing of 18.9% and 14.4% to price to earnings multiples of 12.2x and 12.1x, respectively. The highest priced was the group with less than $500 million, decreasing 23.5% to a 15.6x price to earnings multiple.

Financial institutions under $1 billion reported much lower LTM ROAA (average of medians 0.77%) and loan demand (average Loans/Deposits of 91.8%) than institutions with assets over $1 billion (average of median LTM ROAA 1.23% and Loans/Deposits 93.04%).

Mergers & Acquisitions by Region

Bank consolidation was up through January 2019 as compared to January 2018 with 20 transactions announced through January 2019 (10 transactions with terms), compared to 16 through January 2018 (9 transactions with terms). Median pricing in this first month of 2019 was lower than 2018 on a price to tangible book decrease of 17.1% (median 1.61x), a price to 8% tangible book decrease of 15.2% (1.63x), a decrease of price to deposits of 24.1% (17.2%), and a price to earnings basis with a 0.9% decrease on LTM earnings (20.0x).

The South region continues to have the highest number of transactions and number of transactions with terms with 7 deals through January of which 3 reported terms. Transactions in the South reported the lowest price to tangible book of the group with a multiple of 136%, the lowest price to 8% tangible book (136%), but the highest price to earnings (27.8x) and the second highest price to deposits at 18.3%. The West region has reported 3 deals in 2019 with 2 of them reporting terms, and reported the third highest pricing on a price to tangible book basis, highest price to 8% tangible book, and highest price to deposits (173%, 209%, and 24.1%, respectively). The Midwest and North Central each had 4 transactions to begin 2019 (2 with terms in each region), with a 144% and 174% price to tangible book, respectively. The East – New England and the Southwest each logged one deal through January. The Southwest deal did not have terms, while the New England deal had the highest reported price to tangible book basis of 193%.

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