Finding Value in Pacific Regional Banks
Last month, I took a look at some regional banks, breaking it down by region. When I looked at the Pacific region, I found seven banks that I felt that would be good investments. Now that earnings season is mostly over, I thought it would be a good time to see if the quarter helped any banks move or enter the rankings. Regional banks might also see an increase as customers of larger banks vote with their feet and move to local banks.
What is the Pacific?
When looking at the regional banks, it is important to note that some of the regions have some overlap. The Pacific region generally includes banks from states along the Pacific coast, as well as banks in Alaska and Hawaii. Also included are banks based a bit further inland, like Montana-based Glacier Bancorp. Region-leading Bank of Hawaii (NYS: BOH) is the largest bank in Hawaii and many other South Pacific territories.
As I did previously, I will rank the banks based on four factors: P/E ratio, P/B ratio, dividend yield, and net income margin. Only banks with a market cap over $300 million will be included.
Profitability is important, so I first eliminated all banks without earnings over the past 12 months, looking for the cheapest bank according to this metric. My second factor is the P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at half, sell at two." Only banks that pay a dividend will be included -- the higher the payout, the better. Finally, net income margin will be used as another method of comparing the banks' profitability.
Instead of further screening based on a higher dividend yield, I ranked all 10 banks that met the minimum requirements. Here are the top seven:
P/E Ratio (TTM)
Net Income Margin
|Bank of Hawaii||12.1||1.87||4.4%||27.1%|
|First Interstate Bancsystem (NAS: FIBK)||12.3||0.62||4.1%||12.4%|
|City National (NYS: CYN)||12.6||0.98||2%||15.6%|
|Cathay General Bancorp (NAS: CATY)||13.3||0.66||0.3%||24.8%|
|CVB Financial (NAS: CVBF)||14.3||1.41||3.6%||26%|
|East West Bancorp (NAS: EWBC)||13.4||1.23||1.1%||25.8%|
|PacWest Bancorp (NAS: PACW)||22.0||1.14||4.1%||9.9%|
Source: FinViz.com, TTM = trailing 12 months.
Quarterly results cause changes
Region-leading Bank of Hawaii nearly lost its grasp on the top spot after its quarterly earnings were down 1.8% from last year. Being the cheapest bank by P/E and the most profitable according to net income kept it on top. Gone from the list is former second place Glacier Bancorp, which, despite having the highest dividend yield of the region, is shunned due because of a P/E over 66 and a net income margin of only 4%. Umpqua Holdings and Westamerica Bancorp also join Glacier on the scrap heap.
Regional opportunities abound!
While the real lesson from Bank Transfer Day will be learned in the coming months, regional banks offer a better investment in the months ahead. Keep an eye on Pacific leader Bank of Hawaii by adding it to your free, personalized version of the Fool's My Watchlist today.
At the time this article was published Fool contributorRobert Eberhardowns no shares in the companies mentioned here. Follow him on Twitter, where he goes by@GuruEbby. The Motley Fool owns shares of Bank of Hawaii. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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