Investment firm McAdams Wright Ragen has recently released its first quarter 2012 Community Bank Report which includes over 1,100 publicly traded banks and thrifts and provides data broken down by asset size as well as by region. The report is a unique look at many of the banks that aren’t traded on the NYSE Euronext or NASDAQ OMX, which so get little attention in the world of equity research. When looking at a bank’s asset size in comparison to the level of non-performing loans still held on the books, the statistics show a wide variation between the largest and smallest institutions. The average Texas ratio for the largest institutions (28 percent) is much lower than that for the smallest institutions, those with under $250 million in assets (43 percent). A similar story plays out in values. Banks above $25 billion in assets traded at an average of 129 percent of tangible book value. Banks below $250 million in assets traded at an average of 69 percent of tangible book. Smaller banks have less access to capital markets, which could impact values, but many of them have more troubled loans on the books as well, which impacts the Texas ratio. A ratio above 100 percent is an indication of a potential bank failure.
When examining regional trends, every region has seen improvement in recent quarters in almost every important metric (price/tangible book, price to earnings ratio, Texas ratio, tangible equity/tangible assets). The three areas of the country where the banks have seen the greatest improvement in price and credit (the Southeast, Southwest and the Midwest) were hardest hit by the depression in the housing market and credit crunch. While these regions’ cumulative statistics have seen the greatest improvement since the third quarter of 2012, they still lag behind those of the Northeast and West.
The full report can be accessed here.