Banks Are Sunny In the Southwest

Shareholders at banks headquartered in the Southwestern United States have good cause to be happy. According to data provided by Seattle-based investment firm McAdams Wright Ragen, which has a research focus on community banks, the price to tangible book value (PTBV) for Southwestern banks averaged 128.83 percent—a full 22 percentage points higher than the next best performing region—the Northeast, as of the first quarter.

Data courtesy of McAdams Wright Ragen’s Q1 2013 Community Bank Report. The report includes quarterly averages by region based on data from more than 1,100 publicly traded banks.

The region also boasts the lowest Texas ratio, at 13.83 percent, and non-performing assets to total assets of just 1.57 percent.

One-third of these banks are based in Texas, which serves as home to many highly valued community banks and boasts the highest PTBV in the nation, at 169.59 percent. Why are banks rated so highly in the Lone Star State?

According to John Heasley, executive vice president and general counsel at the Texas Bankers Association, the state of the Texas economy is key to the success of its banks. In addition to a boom in energy production, Texas benefits from the relocation of businesses from other parts of the U.S. that aim to take advantage of low taxes and regulations. That economic growth translates into increased loan growth and profitability. “Our typical community bank in most areas of the state [is] doing very well,” Heasley says.

Prosperity Bancshares Inc., based in Houston, and First Financial Bankshares Inc., based in Abilene, are two of the highest valued banks in the U.S., with both hovering around 350 percent PTBV. “Both are very focused on business lending,” says Heasley, leading both institutions to greater profitability. Prosperity has also been actively growing through acquisition. The holding company has made six acquisitions in the last year and a half, and recently announced plans to purchase FVNB Corp. and its subsidiary, First Victoria National Bank.

In contrast, the Southeastern United States continues to perform poorly compared to the rest of the country. While price per tangible book value on average is the lowest at 92.66 percent, book value has grown by 24 percent over the past year. So while pricing remains low, the Southeast seems to be working its way back up.