A Wall Street Transcript Interview with Thomas S. Mitchell, Senior Analyst at Miller Tabak + Co., LLC Covering Consumer and Commercial Finance Companies: Gradual Loan Growth and Increased M&A Activity for Southwest and Pacific Banks

Wall Street Transcript

67 WALL STREET, New York - March 10, 2014 - The Wall Street Transcript has just published its Pacific and Southwest Banks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Interest Rates and Loan-Growth Strategies - Regulatory Outlook Gains Clarity - Heightened M&A Activity - Consolidation in Regional Banking - Prolonged Interest Rate Environment Challenges - Investing in Regional Banks - Pockets of Growth in Western Banking - Recovery in the Pacific Northwest

Companies include: City National Corp. (CYN), Zions Bancorp. (ZION) and many others.

In the following excerpt from the Pacific and Southwest Banks Report, an experienced banking and financial services analyst discusses the outlook for the sector for investors:

TWST: What about valuations in general in the space? Are they pretty good right now?

Mr. Mitchell: Yes. As a matter of fact, they are high enough that there are likely to be more deals where banks that are trading at 1.5 times or 2 times book value can go out and look at other banks that are trading at 1 times to 1.25 times book value and see that they can pay a premium and end up still having a net increment to their own book value as a result of that value arbitrage.

There are a number of banks that even though they are getting improvement in their asset quality, still are carrying enough legacy problems from the financial crisis period that continue to trade closer to book value, so that there's some haves and some have-nots, and in many cases the have-nots have good businesses. They have excellent businesses, but they are sitting with assets that make investors a little concerned about whether or not that book value is what they believe it is or what is stated. So I think that creates opportunities, and in the space we are likely to see more deals over the next year or two.

TWST: You mean deals in terms of M&A and consolidation deals?

Mr. Mitchell: Yes, absolutely.

TWST: So consolidation is something you are watching. What else are you watching for 2014?

Mr. Mitchell: Aside from the fact that the Fed could stay exactly where it is, long-term interest rates could stay where they are, they're no longer on a ramp-up - I think that would be enough to take some of the wind out of the sails of the banking stocks, because I think that some of the valuations will be getting up around 13 times, 14 times next year's earnings. Some of those valuations were based on while the earning power is there, if net interest margins are moving up is where we felt those interest rates going higher. So I think that to some extent investors were discounting higher interest rates in 2014.

If we don't get higher long-term interest rates, I think that would prove to be a headwind for the stocks. I'm not predicting one way or the other. That would be something that we are watching and would respond to, not something that we're actually suggesting people take a firm conviction one way or the other. Obviously, when we have clients who tell us they have a firm conviction one way or the other, then we'll respond in that case.

I think one of the banks that we find intriguing as a potential acquiree in the area is Zions Bancorp (ZION)...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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