It seems odd that in a state where the government is virtually broke, you'd have something positive to talk about financially. Nonetheless, there are encouraging signs citizens and businesses in California are faring better than their elected officials and the bureaucracy they represent. One specific example is California's regional banks. Most have just released second-quarter earnings and surprisingly, they weren't terrible. Sure, many problems still exist, but there is light at the end of the tunnel and here are some of the reasons why.

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Top Five Regional Banks - California

Company Market Cap Most Recent EPS Surprise
City National Corp. (NYSE:CYN) $1.7B 0.04 (Q1) -82%
Westamerica Bancorp (Nasdaq:WABC) $1.4B 0.75 (Q2) -1.3%
SVB Financial Group (Nasdaq:SIVB) $839.0M -0.20 (Q1) 35%
CVB Financial (Nasdaq:CVBF) $516.6M 0.17 (Q2) 70%
East West Bancorp (Nasdaq:EWBC) $447.6M -1.83 (Q2) -335%


Keeping An Open Mind
Looking at the numbers above, there are definitely some poor results. However, think about the bigger picture. Over the last two years, to July 6, 2009, 11 of California's banks have failed. This compares to 14 for Georgia, which leads the country, and 13 for Illinois.

California's state population is the highest in the country with Texas a not-so-close second place. According to California's Department of Finance, its population is slightly over 38 million and still growing. Frankly, I'm surprised there haven't been more failures. Perhaps this is a testament to California bankers. Whatever the reason, it could be a lot worse. (For more see The Industry Handbook: The Banking Industry.)

Looking Forward
CVB Financial is the
holding company for the Citizen's Business Bank in Ontario, California. It recently received a five-star rating from Bauer Financial, who've been rating U.S. banks and credit unions since 1983. Highlights of its Q2 results include a 30.7% increase in earnings per share from the first quarter of 2009.

CVB CEO Chris Myers had this to say in the quarterly release, "Given the difficulties U.S. banks continue to face, we remain confident that we are well-positioned to continue our strong operating performance during these tough economic times." Clearly, the company is not looking in the rearview mirror.

Righting The Ship

While some banks are doing quite well in the recession, others are raising additional capital just to stay afloat. East West Bancorp announced July 20, that it was offering 11 million shares to the public as part of an ongoing effort to get it through this difficult economic downturn. Of all five banks listed above, East West Bancorp does appear to be the weakest of the regional California banks. While it did report a $1.83 per share loss in the second quarter, it also managed to produce a 39% decline in loan
delinquencies.

Is it enough to keep East West off the growing list of failing banks? Time will tell. It's certainly a step in the right direction. (Learn about using nonperforming assets to measure banks' health in Texas Ratio Rounds Up Bank Failures.)

The Bottom Line

Last October, I spoke favorably about the dual investment in SVB Financial common stock and
trust-preferred stock. At the time, the common stock was trading at $49.42. Today it sits around $26. In June, RBC Capital Markets upgraded its stock from "sector-perform" to "outperform." If you're looking for a long-term hold, 2010 could be a very good year for Silicon Valley Bank stock. As for the other banks, with the exception of East West Bancorp, they all look attractive right now.

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