In July 2017, stock markets changed very little from June, as geopolitical concerns were offset by positive second-quarter earnings reports, with the SNL Bank Index generally flat in July. Early in the month, North Korea test launched an intercontinental ballistic missile that it said could carry a nuclear warhead. The U.S. said it would prefer to use a global diplomatic strategy against Pyongyang. As the big banks began reporting second quarter earnings, a few analysts noted that banks have reported better than expected loan growth and outperforming net interest margins. In other news, acting Comptroller of the Currency Keith Noreika said he will not petition the Consumer Financial Protection Bureau’s (“CFPB”) rule banning arbitration agreements in financial products, instead allowing Congress to debate the fate of the rule through the Congressional Review Act, which allows it to overturn any regulation by a simple majority vote. Earlier in the month, the CFPB issued a final rule that restricts the use of arbitration clauses in many financial products. Industry groups have opposed the rule, arguing it effectively bans arbitration clauses widely used in credit cards and other products.

In economic news, the U.S. Department of Labor announced that nonfarm payroll employment increased by 222,000 in June, while the unemployment number increased to 4.4% from 4.3%. Experts originally predicted an increase of 170,000 jobs, with the unemployment rate expected to remain at 4.3%. However, wage growth was flat as average hourly earnings rose by 2.5% on a year-over-year basis. The Institute for Supply Management released its Purchasing Managers’ Index, which showed the U.S. manufacturing sector expanded in June at its fastest pace since August 2014, while the Census Bureau reported early in the month that spending on construction was roughly flat in May compared to April. Further, total existing-home sales decreased 1.8% in June to a seasonally adjusted annual rate of 5.52 million from 5.62 million in May according to a U.S. National Association of Realtors report.

In other news, the Federal Open Market Committee’s latest minutes showed that Fed officials have a “range of views” about when to start unraveling the central bank’s $4.5 trillion balance sheet. Some officials suggested the Fed should delay changing its reinvestment policy until later this year due to concerns about sluggish inflation. Other Fed officials wanted to start the process within a couple of months. Federal Reserve Chair Janet Yellen told a Senate committee that she sympathizes with some of the Treasury’s recommendations on financial regulatory reform, but that certain provisions would increase the likelihood of another financial crisis.

Bank M&A pricing was up significantly year-to-date through June compared to year-to-date pricing through July 2016 on slightly lower volume (see chart below).

The SNL Bank Index was flat in July, and underperformed the S&P 500 which gained 1.9% during the month, while banks between $1 billion and $5 billion increased 0.2%, banks below $500 million lost 1.5%, and banks between $500 million and $1 billion posted a slight decrease of 0.2% during the month.

Over the three month period ending July 2017, the SNL Bank Index gained 4.3% while the S&P 500 increased 3.6%. Over the prior twelve months, the SNL Bank Index outperformed the overall market, as it increased 37.8% while the S&P 500 increased 13.6%.


All regions reported tangible book pricing north of 1.72x and price to earnings of 17x or better. The Southwest region remained the highest priced region at a median price to tangible book of 1.96x and the Mid-Atlantic reported the lowest at 1.72x. The West was the only region to increase (1.2%) in median price to tangible book in July, jumping to 1.90x tangible book. The Northeast saw the largest decrease (9.3%), dropping to 1.81x price to tangible book.

Strong pricing among the 29 public banks in the Southwest region was supported by performance with median ROAA (0.99%) and Net Interest Margin (3.51%) each coming in below the performance of the 48 public banks in the West (ROAA 1.02% and Net Interest Margin 3.71%, respectively). The Southeast (81 public banks) continued to report strong pricing at 1.88x tangible book.

On a median price to earnings basis, all regions except for the West reported lower values within a range of 17.0x and 19.7x LTM earnings. The only region to increase on a price to earnings basis was the West (0.9%), as the Midwest decreased the most (6.6%).


Over the past year, the largest financial institutions are consistently priced at least 50% higher on a price to tangible book basis. Size affords higher profitability which directly impacts pricing multiples. During July, the three groups with total assets over $1 billion saw an average median tangible book pricing of 2.00x while the two smallest group medians averaged a 1.33x price to tangible book multiple. On a price to LTM earnings, the three groups with assets over $1 billion saw an average median price to LTM earnings multiple of 18.6x while the two smallest groups were lower at a 17.9x LTM earnings multiple.

Financial institutions under $1 billion reported lower LTM ROAA (average of medians 0.80%) and lower asset quality (0.81% average of median NPAs/Assets) than institutions with assets over $1 billion (average median LTM ROAA 1% and NPAs/Assets 0.72%).

Mergers & Acquisitions by Region

Bank consolidation slowed to a slightly lower pace in 2017 as 135 transactions have announced year-to-date compared to 144 through July 2016. However, median year-to-date pricing through July 2017 was substantially higher at a 23.6% increase on tangible book (1.63x), 23.3% increase on price to 8% tangible book (1.74x), 20.1% increase on LTM earnings (22.3x), and 28.4% increase on deposits (20.8%) compared to transactions announced through July 2016. Higher prices in 2017 for merger and acquisitions are the direct result of higher public bank stock prices.

The West region reported the highest price to tangible book multiple at 1.85x (17 deals with terms) followed by the Midwest at 1.66x (14 deals with terms) followed closely by the South at 1.65x on 29 transactions (38 total deals). The lowest priced region, the East – New England, reported a tangible book pricing multiple of 1.38x (14 deals with terms) likely due to low LTM ROAA performance of the targets at 0.37%.

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