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Is This the Best Bank in the Pacific?

By Robert Eberhard – Updated Apr 6, 2017 at 6:34PM

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Putting regional banks under the magnifying glass to find value.

Financial stocks have been taking a beating recently. Banks that operate in certain regional areas tended to stand out in my earlier examination of smaller banks. Let's use this information to determine which bank might be the best in the Pacific.

What is the Pacific region?
The Pacific region covers banks from states along the Pacific coast, as well as banks in Alaska and Hawaii. I'm being a little generous with what counts as Pacific -- we'll also move a bit inland and reach banks as far east as Montana. The No. 2 bank in the region according to our rankings, Glacier Bancorp (Nasdaq: GBCI), is based in Montana, but also owns banks in Idaho, Utah, Washington, and Wyoming.

Screening factors
We will rank and average 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.

My first screening will eliminate all banks without earnings over the past 12 months, looking for the cheapest bank according to the P/E ratio. My second factor is P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at a half, sell at two." Only banks that pay a dividend will be included -- the higher, the better. Finally, I will be using net income margin as another method of comparing bank profitability. My initial screen turned up 10 names, so I refined my screen to include banks with a dividend yield greater than 2%. The results:

Company

P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

Bank of Hawaii (NYSE: BOH) 11.2 1.78 4.8% 26.6%
Glacier Bancorp 19.1 0.91 4.8% 13.0%
CVB Financial (Nasdaq: CVBF) 13.6 1.31 4% 21.7%
Westamerica Bancorp (Nasdaq: WABC) 13.1 2.12 3.5% 34.3%
First Interstate Bancsystem (Nasdaq: FIBK) 13.3 0.62 4.1% 11.4%
City National Corp (NYSE: CYN) 13.6 1.04 2% 15.1%
Umpqua Holdings (Nasdaq: UMPQ) 24.0 0.67 2.8% 9.6%
Regional Averages 13.0 0.91 2.2% 8.0%

Source: FinViz.com. TTM = trailing 12 months.

Bank of Hawaii proves that literally being on an island away from other competitors makes it a great choice. The moat that is the Pacific Ocean gives them protection from even the largest national banks. It also expands beyond its namesake island and is the largest bank in many South Pacific territories. Our resident banking expert Anand Chokkavelu recently added it to his real-money Rising Star Portfolio for this very reason.

Regional opportunities abound!
Other Fools point to great values in some of the larger banks, and I couldn't agree more. However, there are many great opportunities in some of the regional banks. I will be paying special attention to Bank of Hawaii and adding it to My Watchlist. Feel free to do the same.

Fool contributor Robert Eberhard does not own any shares of the companies mentioned here. Follow him on Twitter, where he goes by @GuruEbby. The Motley Fool owns shares of Bank of Hawaii. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Bank of Hawaii Stock Quote
Bank of Hawaii
BOH
$77.69 (-0.02%) $0.01
Umpqua Stock Quote
Umpqua
UMPQ
$18.36 (-0.22%) $0.04
CVB Financial Stock Quote
CVB Financial
CVBF
$27.03 (-0.84%) $0.23
WestAmerica Bancorp Stock Quote
WestAmerica Bancorp
WABC
$58.70 (-0.50%) $0.29
First Interstate BancSystem Stock Quote
First Interstate BancSystem
FIBK
$40.93 (-0.61%) $0.25
Glacier Bancorp Stock Quote
Glacier Bancorp
GBCI
$54.42 (-0.98%) $0.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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