Bank stocks posted strong gains in the fourth quarter and reached a high for the year on December 26, 2013 despite continued regulatory and net interest margin pressure in today’s low interest rate environment. Improvement in the economy with revised government data announced in December showing annualized growth of 4.1% for the third quarter coupled with an expansion of the manufacturing sector and momentum in the housing sector as well as the Federal Reserve’s decision to change its stimulus program all contributed to higher bank stock prices as well as stock prices in general.
The SNL U.S. Bank Index increased by 11.3% during the fourth quarter of 2013 after increasing by 2.2% during the third quarter while posting a full year gain of 34.8%. Smaller banks also posted gains during the quarter, albeit slightly lower than the bigger banks, with the SNL U.S. Bank less than $500 million index increasing by 5.2% after increasing by 6.7% during the third quarter of 2013 with the index being up by 32.4% for the full year. The SNL U.S. Bank $1 billion to $5 billion index posted an increase of 13% during the fourth quarter compared to the increase of 9.2% during the third quarter, while being up by a robust 42.8% for the year.
REGIONAL PRICING HIGHLIGHTS
Pricing for the 22 public bank in the Southwest neared 2x tangible book and 20x earnings ending the year at a median of 1.80x tangible book and 19.2x last twelve months earnings as of September, the highest among regional bank pricing. This contracted with the Southeast region which reported the lowest but vastly improving multiples at a median price to tangible book of 1.43x and price to last twelve month earnings of 14.7x for the 84 public banks in the Southeast region.
PRICING BY SIZE
Size makes a difference. As the large financial institutions benefit from higher non-interest income and the ability to absorb increasing regulatory and operational costs, institutions over one billion in assets enjoy much higher pricing multiples. Banks over a billion in size realized median price to tangible book multiples between approximately 1.50x to nearly 2.10x and price to last twelve month earnings multiples of approximately 16x to 20x. However, banks less than a billion are priced at approximately tangible book value or lower and approximately at 13x last twelve month earnings. Banks between $5 and $10 billion enjoyed the highest pricing multiples while the largest banks of $10 billion in size have been impacted by mortgage related settlements.
More information regarding nationwide M&A activity can be found here.