Public bank stocks had their third consecutive positive month of the year in May and outperformed the broader market as investors await to see if the FOMC will raise rates soon. FOMC officials agreed that a rate hike would be likely at their next meeting in June if the economy continues to show signs of healthy expansion. Federal Reserve Chairman Janet Yellen reiterated that central bank policymakers are considering a rate increase at either its upcoming June or July meeting. However, some believe a rate increase is not likely until December 2016 to avoid interfering with the general election. Oil prices, which have driven much of the market volatility in 2016, continued to gain ground in May. According to the U.S. Department of Labor, the unemployment rate declined by 0.3 percentage points to 4.7% in May, and nonfarm payroll employment changed little (+38,000 vs. expectations of 162,000). The economy added fewer jobs in April than in March, falling short of consensus estimates and leaving the unemployment rate unchanged at 5%. While the jobs report fell short of expectations, wages grew 2.5%. Total existing home sales rose 1.7% in April, beating estimates. M&A pricing was down year-to-date through May compared to year-to-date pricing through May 2015 on slightly lower volume (see chart below).

The SNL Bank Index jumped 2.2% in May, and outperformed the S&P 500 which increased 1.5% as banks less than $500 million posted the largest increase of 3.9%. The SNL Bank Index for banks $1 billion and $5 billion gained the least at 1.5%, while banks between $500 million and $1 billion gained 1.7% during the month.

Over the three month period ending May 2016, the SNL Bank Index increased 15.3% while the S&P 500 increased 5.8%. The trend differed over the prior twelve months as the SNL Bank Index declined 5.1% while the S&P 500 declined only 0.5%.


The Southwest region saw the largest increase in median price to tangible book (6.4%) in May and was followed by the Mid-Atlantic (4.8%). The increase in oil prices continues to drive pricing higher in the Southwest region, which is heavily tied to the energy sector. While it was the only region to decrease in pricing in May (-1.0%), the West remained the highest priced region for the second consecutive month.

At 1.55x 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 (3.76%) on a LTM basis. The Mid-Atlantic region reported the lowest median tangible book price of any region at 1.35x, but was up 4.8% from April 2016, while the Southwest increased 6.4% to 1.42x book, remaining the second lowest priced region. The Midwest and Southeast reported median tangible book pricing of 1.49x and 1.51x (up 2.7% and 1.5%, respectively from April 2016) while the Northeast reported a median 1.49x, up 1.3% from April 2016. While pricing generally improved in May, median prices are still down across all regions except the Southeast and Midwest since December 2015.

On a median price to earnings basis, the Southeast reported the highest pricing at 16.3x LTM earnings while the Southwest reported 16.0x LTM earnings, followed by the West (15.5x), Mid-Atlantic (15.2x) and Northeast (15.2x) with the Midwest at a median 14.5x LTM earnings on the low end. All of the regions showed an increase in price to earnings since April 2016, increasing 2.5% on average, while the Southwest showed the largest increase on a price to earnings basis, up 4.7% from April 2016. The West continued to report the highest median LTM net interest margin (3.76%) followed by the Southeast region (3.66%) which continued to report the highest NPAs/Assets (1.05%). The West reported the highest median LTM ROAA at 1.03% followed by the Midwest region at 0.97% and Southwest at 0.95%. The Southwest region maintained a high premium during the last downturn due to strong oil and gas prices, but has since seen their values significantly cut during the current fall in oil prices. However, pricing in the Southwest has improved over the past few months on both price to tangible book and price to earnings with oil prices moving up and strong median earnings, strong loan to deposits at 88.9% and a net interest margin of 3.62%, the third highest.


Pricing continues to be proportional to asset size and earnings as all bank groups gained on pricing in May. The banks between $5 billion and $10 billion had a median price of 2.00x tangible book followed by banks greater than $10 billion at 1.67x, while the two smallest sized groups averaged a 1.10x multiple. The smallest banks, those below $500 million, were up 13.1% in May to 1.14x and are no longer the lowest priced group, while banks between $5 billion and $10 billion remained the highest priced group and increased in the month of May (2.2%) to 2.00x. Mid-sized banks, those between $1 billion and $5 billion, increased 0.6% since April 2016 and were priced at 1.45x tangible book. Banks over $10 billion gained 1.9% in May to 1.67x, while banks between $500 million and $1 billion reported a price to tangible book multiple at 1.06x up 1.5% since April 2016.

On a median price to LTM earnings basis, banks with assets between $5 billion and $10 billion once again reported the highest multiple of 17.1x, up 3.7% from April 2016, on the highest median ROAA (1.03%) on strong median LTM net interest margin (3.67%) and lowest NPAs/Assets (0.74%). The largest banks reported a median price to LTM earnings of 16.1x, up 2.2% from April 2016 and reported the second highest median ROAA (0.97%). Banks with less than $500 million matched the largest banks with a price to earnings ratio of 16.1x (up 5.7% since April 2016, the most of any group) but reported the lowest median ROAA (0.61%). Banks between $500 million and $1 billion reported the lowest pricing at 13.4x earnings and highest median LTM net interest margin (3.70%), while midsized banks between $1 billion to $5 billion posted mid-range pricing at 15.1x LTM earnings on the fourth highest median LTM net interest margins of 3.63% and median ROAA of 0.92%.

Mergers & Acquisitions by Region

Bank consolidation continued at a slightly slower pace on a year-to-date basis through May 2016 with 96 transactions compared to 105 reported through May 2015. Approximately 60% of the transactions announced year-to-date through May 2016 reported pricing terms, while 54% of the transactions through May 2015 reported terms. Median year-to-date pricing through May 2016 was down across the board at a 6.7% decrease on tangible book (1.31x), 6.9% decrease on 8% tangible book (1.40x), 18.3% decrease on LTM earnings (18.4x), and 5.8% decrease on deposits (16.0%) compared to year-to-date pricing through May 2015. Only one transaction was reported in the Southwest Region with pricing (which typically has the highest price to tangible book multiples) which had a price to tangible book multiple of 1.74x on tangible equity to assets of 14.4%, NPAs/Assets of 0.8% and ROAA of 1.40%. The East–New England and West regions had the next highest median price to tangible book multiples (1.39x and 1.35x, respectively). The West region reported the highest price to LTM earnings (22.0x) on a median ROAA of 0.68%. Banks selling in the Midwest reported strong median tangible equity at 10.7% of assets and lower median tangible book multiples (1.23x). Twenty-one transactions were reported in North Central 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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