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South-East, South-West & Pacific Regional Banks 12-28-16

A rising tide lifts all boats - the tide is up - and it may be the case that low Price/Book ratio banks (which had low valuations due to good reasons) are rising much more than they should.

HBHC is up 73% - and still has a price/book ratio of 1.36 compared to the sector average of 1.84. ZION is up 58% - and still has a price/book ratio of 1.27. TRMK is up 56% - and still has a price/book ratio of 1.60. If you began the year with a low valuation, odds are good your price appreciation is better than average.

2016 price appreciation has not correlated that well with book growth or dividend growth. But there is a decent correlation to 2015 price under performance.

Banks rise when interest rates rise. REITs rise when interest rates fall. Like most of the market, I have been expecting a rise in rates since approximately 2010. Rates have a mind of there own. I do not want to weight my portfolio with bets on interest rate movements. I have a 7.55% sector allocation in banks because I have an 8.30% allocation in REITs.

I want to own banks with better than average book growth (two of my three did); superior earnings projection accuracy (three of three do); better than average dividend growth (one of three) and moderate valuations.

South-East, South-West & Pacific Regional Banks 12-28-16

The Q4-16 dividend is used for yield calculations. The LTM change is since Q4-15. The Q3-16 book value is used in the price/book ratios - and the change in book is from Q3-15 to Q3-16. CBSH paid some dividends in new shares or stock splits of 105 for 100 shares. This happened in November of 2014, 2013, 2012, 2009, and in most years prior to 2009. This results in a shrinking book per share metric in my unadjusted data - but would not in adjusted data. This also understates dividend growth in my unadjusted data. LTM = last twelve months. Plunging energy prices in 2015 hit the valuations of any bank that might have loan exposure - hurting BOKF, CFR, PB and possibly harming HBHC and TRMK. 2016 has been a year of the dead cat bounce for those stocks. City National (NYSE:CYN) was purchased by Royal Bank of Canada (NYSE:RBC) and stopped trading on 10-30-15.


    12-31-15 Current Dividend Current Div/EPS Pr/Bk Percent Change LTM % Change
Company and stock ticker Price Price /Quarter Yield Ratio Ratio Price Pr+Div EPS Target Div Book

BOK Financial Corporation (NASDAQ:BOKF) 59.79 83.30 0.440 2.11 46.44 1.62 39.32 42.26 -21.37 20.57 2.33 3.37
Bank of Hawaii Corporation (NYSE:BOH) 62.90 89.16 0.480 2.15 45.39 3.27 41.75 44.80 7.91 34.74 6.67 7.50
Banc South, Inc. (NYSE:BXS) 23.99 31.30 0.125 1.60 34.01 1.71 30.47 32.56 -10.91 30.14 25.00 4.74
Cathay General Bancorp (NASDAQ:CATY) 31.33 38.30 0.180 1.88 32.88 1.72 22.25 24.55 3.79 38.80 28.57 4.35
Commerce Bancshares (OTC:CBSH) 42.54 57.99 0.225 1.55 34.48 2.44 36.32 38.43 -5.09 20.44 0.00 -0.63
Cullen/Frost Bankers, Inc. (NYSE:CFR) 60.00 87.67 0.540 2.46 46.45 1.83 46.12 49.72 -2.52 7.03 1.89 8.26
East West Bancorp, Inc. (NASDAQ:EWBC) 41.56 51.00 0.200 1.57 27.40 2.18 22.71 24.64 2.46 34.57 0.00 9.79
First Horizon National (NYSE:FHN) 14.52 20.26 0.070 1.38 29.17 2.01 39.53 41.46 2.13 48.79 16.67 7.91
F.N.B. Corporation (NYSE:FNB) 13.34 16.11 0.120 2.98 60.76 1.36 20.76 24.36 -19.39 17.04 0.00 3.50
Glacier Bancorp, Inc. (NASDAQ:GBCI) 26.53 36.28 0.200 2.21 50.31 2.42 36.75 39.77 -5.92 17.76 5.26 5.41
Hancock Holding Comp (NASDAQ:HBHC) 25.17 43.60 0.240 2.20 52.17 1.36 73.22 77.04 -13.21 20.64 0.00 1.39
Prosperity Bancshares Inc. (NYSE:PB) 47.86 72.59 0.340 1.87 34.61 1.40 51.67 54.51 -3.91 6.77 13.33 6.24
Regions Financial Corp (NYSE:RF) 9.60 14.43 0.065 1.80 29.89 1.08 50.31 53.02 2.35 27.60 8.33 8.25
Trustmark Corporation (NASDAQ:TRMK) 23.04 36.03 0.230 2.55 57.50 1.60 56.38 60.37 -3.03 41.56 0.00 3.06
UMB Financial Corp (NASDAQ:UMBF) 46.55 77.23 0.255 1.32 31.97 1.89 65.91 68.10 8.50 24.36 4.08 5.96
Umpqua Holdings Corp (NASDAQ:UMPQ) 15.90 18.84 0.160 3.40 61.54 1.06 18.49 22.52 -19.38 -3.26 0.00 2.18
WestAmerica Bancorp. (NASDAQ:WABC) 46.75 63.99 0.390 2.44 68.12 2.92 36.88 40.21 -1.72 15.22 0.00 4.93
Zions Bancorporation (NASDAQ:ZION) 27.30 43.28 0.080 0.74 16.67 1.27 58.53 59.71 -2.54 36.01 33.33 5.30

Average         2.01 42.21 1.84 41.52 44.33 -4.55 24.38 8.08 5.08

The KRE Bank EFT has changed 28.03% year to date - with dividends it has changed 29.81%.
The KBWR Bank EFT has changed 37.14% year to date - with dividends it has changed 39.18%.
With the 10 Treasury at 2.49% and the sector average yield on Q4 dividends at 2.01% - the spread is -58 basis points.
Weeding out banks paying sub eleven cent dividends - the average yield would be 2.12% and average price/book would be 1.99.

Note the logical correlation between high P/E ratios and high ROEs:

Banks P/Es with Accuracy Ratings, Price/Books and ROEs 12-28


  EPS / Share % EPS Growth Price/EPS 16 EPS Range Quality Metrics
Co. 2012 2013 2014 2015 2016 2017 11-12 14-15 15-16 16-17 2015 2016 2017 High Low Range Ac Rt Pr/Bk ROEs

BOKF 5.13 4.62 4.41 4.46 3.79 4.76 -4.55 1.13 -15.02 25.59 18.68 21.98 17.50 3.91 3.52 10.29% 1.0 1.62 7.11
BOH 3.67 3.37 3.67 3.65 4.23 4.29 8.90 -0.54 15.89 1.42 24.43 21.08 20.78 4.26 4.19 1.65% 1.1 3.27 15.98
BXS 0.90 0.98 1.28 1.47 1.47 1.66 30.61 14.84 0.00 12.93 21.29 21.29 18.86 1.50 1.46 2.72% 1.8 1.71 6.90
CATY 1.28 1.43 1.72 1.99 2.19 2.29 20.28 15.70 10.05 4.57 19.25 17.49 16.72 2.20 2.16 1.83% 1.2 1.72 9.56
CBSH 2.90 2.75 2.65 2.56 2.61 2.81 -3.64 -3.40 1.95 7.66 22.65 22.22 20.64 2.63 2.59 1.53% 1.5 2.44 10.90
CFR 3.86 3.78 4.30 4.52 4.65 4.94 13.76 5.12 2.88 6.24 19.40 18.85 17.75 5.12 4.52 12.90% 1.0 1.83 9.19
EWBC 1.88 2.10 2.39 2.68 2.92 3.11 13.81 12.13 8.96 6.51 19.03 17.47 16.40 2.94 2.91 1.03% 1.0 2.18 12.80
FHN 0.10 0.06 0.88 0.83 0.96 1.11 1366.67 -5.68 15.66 15.63 24.41 21.10 18.25 0.97 0.95 2.08% 5.0 2.01 8.72
FNB 0.84 0.84 0.80 0.88 0.79 1.00 -4.76 10.00 -10.23 26.58 18.31 20.39 16.11 0.80 0.78 2.53% 2.5 1.36 6.80
GBCI 1.05 1.31 1.55 1.54 1.59 1.75 18.32 -0.65 3.25 10.06 23.56 22.82 20.73 1.62 1.55 4.40% 2.0 2.42 10.76
HBHC 2.13 2.09 2.35 1.75 1.84 2.35 12.44 -25.53 5.14 27.72 24.91 23.70 18.55 1.87 1.82 2.72% 5.0 1.36 4.56
PB 3.23 3.58 4.28 4.08 3.93 4.03 19.55 -4.67 -3.68 2.54 17.79 18.47 18.01 3.96 3.89 1.78% 1.0 1.40 7.88
RF 0.74 0.81 0.85 0.75 0.87 0.96 4.94 -11.76 16.00 10.34 19.24 16.59 15.03 0.88 0.81 8.05% 2.5 1.08 6.71
TRMK 1.78 1.91 1.85 1.71 1.60 1.75 -3.14 -7.57 -6.43 9.37 21.07 22.52 20.59 1.63 1.57 3.75% 1.0 1.60 7.13
UMBF 3.04 3.14 2.83 2.46 3.19 3.58 -9.87 -13.07 29.67 12.23 31.39 24.21 21.57 3.22 3.15 2.19% 5.0 1.89 7.41
UMPQ 0.93 0.95 0.84 1.03 1.04 1.17 -11.58 22.62 0.97 12.50 18.29 18.12 16.10 1.07 1.02 4.81% 5.0 1.06 5.84
WABC 2.93 2.52 2.32 2.31 2.29 2.33 -7.94 -0.43 -0.87 1.75 27.70 27.94 27.46 2.30 2.28 0.87% 3.0 2.92 10.75
ZION 1.22 2.35 1.81 1.25 1.92 2.38 -22.98 -30.94 53.60 23.96 34.62 22.54 18.18 1.98 1.88 5.21% 5.0 1.27 5.67

Average             -1.26 7.10 12.09 22.56 21.04 18.85     3.91% 2.5 1.84 8.59

Disclosure: I am/we are long BOKF, CFR, PB.