Western Banks are in Better Growth Markets: An Outlook on the Sector Provided by Aaron James Deer, Managing Director and Equity Research Analyst at Sandler O'Neill + Partners L.P.

Wall Street Transcript

67 WALL STREET, New York - March 7, 2013 - 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 and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Heightened M&A Activity - Regulatory Obstacles and Fee Income Replacement - Interest Rates and Loan-Growth Strategies - Pockets of Growth in Western Banking - Regulatory Outlook Gains Clarity

Companies include: East West Bancorp Inc. (EWBC), City National Corp. (CYN), CapitalSource Inc. (CSE), SVB Financial Group (SIVB), Bank of Hawaii Corporation (BOH) and many more.

In the following excerpt from the Pacific and Southwest Banks Report, an expert analyst discusses the outlook for the sector for investors:

TWST: From the most recent quarterly earnings reports and calls, did any particular themes emerge, or an overall tone among management comments?

Mr. Deer: I think there has been a lot of focus on their net interest margins, but that's not a new phenomenon. I think that with the 10-year having inched back up some, that's giving banks and their investors some hope that we could see a steepening of the yield curve and eventually rising short-term rates. But management teams are not talking too much about that, because it still seems like it's a long way off before we start seeing the Fed change policy on interest rates.

But I think that the tone with respect to loan demand was maybe a little better this quarter than it has been. We did see a lot of activity in the fourth-quarter financing changes in ownership of businesses, which I think was largely driven by tax motivations. With big tax hikes coming here in 2013, a lot of business owners and individuals made tax-related decisions that gave the banks some lending opportunities in the fourth quarter, so that was one standout factor in the quarter, but otherwise there was not much change in tone or direction, just a continuation of the same trends: credit trends continue to improve, staying very mindful of their operating expenses, that sort of thing.

TWST: Is there much else they can do to increase profitability at this point?

Mr. Deer: I think there is more that can be done on the expense side. With more and more banking transactions being done online and through mobile, branch networks are not as important as they used to be, but I think most banks would tell you that at this point, having a strong branch network is still a very important part of their distribution. You are not going to start seeing big declines in the number of branches out there, but I think the banks are being a lot more thoughtful in how they expand...

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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