In July 2016, public bank stocks returned to positive territory after a down month in June and outperformed the broader market as investors gained confidence after the most promising economic data release since domestic and global markets spiraled downward as a result of the Brexit vote. The U.S. Labor Department announced that total nonfarm employment climbed by 287,000 in June, beating the consensus estimates which called for the creation of 180,000 jobs. That figure was up from May which was well below expectations, and coupled with the Brexit vote contributed to fears of a domestic slowdown. One analyst said the jobs improvement was the market’s first step toward moving beyond the Brexit vote, and mentioned last year’s surprise devaluation of the Chines yuan as another unexpected global event which sparked market volatility but ultimately did little to change the fundamentals of the domestic U.S. economy. Further, some believe that U.S. stocks will continue to experience safe haven inflows from abroad.

In other news, the FOMC decided to keep the federal funds rate between 25 – 50 basis points, but noted that near-term risks to the economic outlook have diminished, and noted a strong rebound in jobs in June. The mention of the risks to the outlook diminishing has given investors reassurance following the Brexit situation, and the likelihood of a rate increase later this year remains good. However, a negative report came late in the month when the Bureau of Economic Analysis released its advance estimate in which Real GDP increased at an annual rate of 1.2% in the second quarter, falling well short of expectations of over 2% growth.

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

The SNL Bank Index increased 4.0% in July, and outperformed the S&P 500 which increased 3.6% as banks less than $500 million posted the largest increase of 4.2%. Banks between $1 billion and $5 billion also posted strong results in July, increasing 4.0%, while banks between $500 million and $1 billion gained 2.6% during the month.

Over the three month period ending July 2016, the SNL Bank Index decreased 1.3% while the S&P 500 increased 5.2%. The trend remained over the prior twelve months as the SNL Bank Index declined 10.6% while the S&P 500 increased 5.4%.


The Southeast region saw the largest increase in median price to tangible book (4.8%) in July and was followed by the Northeast (3.9%). The decrease in oil prices in July tempered pricing growth in the Southwest region, which is heavily tied to the energy sector and only increased 0.5% after posting the largest gains the past few months. While remaining fairly flat growing just 0.1% in price to tangible book pricing in July, the West remained the highest priced region for the fourth consecutive month.

At 1.49x 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 1.33x, and was flat from June 2016, while the Southeast increased 4.8% to 1.47x book, going from second lowest priced region in June to the third highest in July. The Midwest and Southwest reported median tangible book pricing of 1.43x and 1.44x (up 1.1% and 0.5%, respectively from June 2016) while the Northeast reported a median 1.48x, up 3.9% 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 group dipped on pricing in July. The banks between $5 billion and $10 billion had a median price of 1.95x tangible book (up 5.0% from June 2016), remaining the highest priced group, followed by banks greater than $10 billion at 1.62x (up 5.0% from June 2016), while the two smallest sized groups averaged a 1.08x multiple. The smallest banks, those below $500 million, were down 10.5% in July to 1.11x, while banks between $500 million and $1 billion remained the lowest priced group and slightly increased in the month of July (0.1%) to 1.06x. Mid-sized banks, those between $1 billion and $5 billion, increased 2.8% since June 2016 and were priced at 1.44x tangible book.

On a median price to LTM earnings basis, banks with assets less than $500 million reported the highest multiple of 17.5x and were up 8.3% since June 2016 on the highest median net interest margin (3.73%), outpacing the banks with assets between $5 billion and $10 billion with a 16.8x price to LTM earnings multiple (up 2.6% since June 2016), on the highest median ROAA (1.05%), strong median LTM net interest margin (3.64%) and lowest NPAs/Assets (0.70%). The largest banks reported a median price to LTM earnings of 15.3x, and was the only group to report a loss in June 2016 at 0.3% and reported the second highest median ROAA (0.96%). Banks between $500 million and $1 billion reported the lowest pricing at 13.9x earnings and highest median tangible equity to tangible assets (9.83%), while midsized banks between $1 billion to $5 billion posted mid-range pricing at 15.3x LTM earnings on the fourth highest median LTM net interest margins of 3.60% and median ROAA of 0.91%.

Mergers & Acquisitions by Region

Bank consolidation continued at a slightly slower pace on a year-to-date basis through July 2016 with 144 transactions compared to 153 reported through July 2015. Approximately 57% of the transactions announced year-to-date through July 2016 reported pricing terms, while 52% of the transactions through July 2015 reported terms. Median year-to-date pricing through July 2016 was down across the board at a 5.4% decrease on tangible book (1.32x), 3.5% decrease on 8% tangible book (1.41x), 19.3% decrease on LTM earnings (18.5x), and 3.6% decrease on deposits (16.2%) compared to year-to-date pricing through July 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 West regions had the next highest median price to tangible book multiples (1.39x and 1.32x, respectively). The West region reported the highest price to LTM earnings (22.0x) on a median ROAA of 0.57%. Banks selling in the Midwest reported strong median tangible equity at 10.5% of assets and lower median price to tangible book multiples (1.30x). Twenty-seven 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.

Leave a Reply

Your email address will not be published. Required fields are marked *