Bank Stock Performance – April
Tepid best describes the financial markets during April. Public bank stocks ended April up slightly and edged out the broader market which remained basically flat. Economic weakness in the job market, sale of single family homes, consumer confidence, Greece and among various predictive economic indices which fell during April overshadowed the slight uptick in mortgage rates. In the banking sector, loan growth remained soft with competition high for quality loans which continued to place pressure on net interest margins and the outlook for revenues.
The SNL Bank Index improved 2.1% in April, out pacing the S&P 500 of 0.9%. The SNL Bank Index for banks between $1 billion and $5 billion in assets dropped 1.2% after growing 3.6% in March while smaller banks, those between $500 million and $1 billion in assets, grew 0.4% and banks less than $500 million in assets kept pace with the SNL Index growing 2.1% in April.
Over the past three months, the SNL Bank index increase of 9.8% outpaced the broader market growth with the S&P 500 index growing 4.5%. Among the asset size indices, Banks between $1 billion and $5 billion lead with 6.8% growth while banks less than $1 billion grew between 3% and 4%.
Over the past year, banks lagged the broader markets with the S&P 500 growing 10.7%, with the SNL Bank Index coming in at 9.8% with Banks under $1 billion in assets growing less than 8% and banks between $1 billion and $5 billion growing 5.8%.
REGIONAL PRICING HIGHLIGHTS
From a regional perspective, the Southwest and Western regions continue to maintain the highest price to tangible book with the Southwest at 155% and the West at 153% at April 30, 2015 on strong median tangible equity levels of 10.22% and 10.23%, respectively. Both regions reported the highest tangible capital and net interest margins on a last twelve months (“LTM”) basis. The Mid-Atlantic, Midwest, Northeast and Southeast regions approximated 140% of tangible book. Overall, median price to tangible book dropped slightly among the regions with the exception of the Southwest which improved 1.7%. On a median price to earnings basis, pricing ranged 14.4x to 16x LTM earnings with the Northeast, Southwest, and West at the high end approximating 16x while the Mid-Atlantic and Midwest ranged from approximately 14.4x to 15.3x. The West reported the highest LTM ROAA at 1.01% followed by the Midwest at 0.94% with the Southwest coming in at 0.91%. With oil and gas influencing the Southwest, it is too soon to measure the full impact of falling oil prices, however, median earnings, net interest margin and loans to deposits declined in the first quarter of 2015 in the Southwest region.
PRICING BY SIZE
Pricing, particularly on tangible book, continues to be proportional to size. The banks with assets greater than $5 billion remained at the very highest pricing levels while the banks between $1 and $5 billion bridged the gap between the banks below $1 billion on the very low end of pricing. The largest financial institutions continue to report the highest return on average assets and best asset quality while the smallest institutions continue to report higher net interest margins. The smallest banks with assets less than $1 billion consistently reported the lowest pricing on a tangible book and LTM earnings basis while pricing fell slightly for banks less than $500 million and improved slightly for banks between $500 million and $1 billion. Banks below $1 billion maintained pricing on a price to tangible book basis below 110% since June 2014. On a price to earnings basis, the largest institutions greater than $1 billion maintained pricing multiples between approximately 15x and 16x, while the smaller institutions maintained pricing multiples between approximately 11.5x and 13.5x.
More information regarding nationwide M&A activity can be found here.Back to the Knowlege Center