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The bill to ease regulation on banks finally passed the House yesterday and will be signed into law by President Trump.  The new bill should reduce costs and open growth opportunities for regional banks.  Dodd-Frank imposed significant costs and regulations on any bank over $50 billion of assets.  According to my conversations with financial services fund managers, this served as a roadblock for growth across the industry.  Very few banks in the last 8 years went from below $50 billion in assets to above this level.  Executives did not want to incur the significant costs and headaches of being a bigger bank.  The new bill raises the threshold for the more stringent requirements under Dodd-Frank to banks with $250 billion or more of assets which applies to only 12 banks.  Regional banks will be free to grow without the worries of arduous regulation.  Because of these changes, we believe mergers and acquisitions activity will accelerate in the regional bank sector.

We continue to be optimistic on the financial services sector.  The economy is growing, and optimism is high.  This points to future loan growth.  Corporate tax rates have been lowered (banks were one of the highest taxed industries).  Interest rates are rising which should lead to higher profits.  Valuations, while not as compelling as 18 months ago, are still attractive.  Banks are returning more money to shareholders via dividends and stock buybacks.  The remaining piece of our positive thesis, deregulation, is here.