Is This the Best Bank in the Southwest?

Financial stocks have been taking a beating recently, but banks that operate in certain regions usually stood out in my earlier examination of smaller banks. Let's use this information to determine which bank might be the best in the Southwest.

What's the Southwest Region?
The Southwest Region, as it's sometimes idiosyncratically defined in banking, is really a three-state area, dominated by Texas, which could almost be its own region. Half of the banks on my list are based in Texas, with the other four split equally between Oklahoma and Missouri. Some of them may have small footprints in other nearby states, but most will be based in one of these states.

Screening factors
I will rank and average the banks based on four factors: P/E ratio, P/B ratio, dividend yield, and net income margin. Only banks with a market cap over $300 million will be included.

My first screening will eliminate all banks without earnings over the past 12 months, looking for the cheapest bank according to this metric. My second factor is P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at a half, sell at two." Only banks that pay a dividend will be included -- the higher the better. Finally, I will be using net income margin as another method of comparing the banks' profitability. My initial screen turned up the following eight names:

Company

P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

International Bancshares (Nasdaq: IBOC  ) 8.6 0.64 2.6% 24.5%
Prosperity Bancshares (Nasdaq: PRSP  ) 11.8 1.05 2.1% 35.4%
BancFirst Corp. (Nasdaq: BANF  ) 12.5 1.13 3.1% 19.5%
Cullen/Frost Bankers (NYSE: CFR  ) 13.3 1.32 3.9% 25.3%
First Financial Bankshares (Nasdaq: FFIN  ) 13.8 1.82 3.5% 32.3%
Commerce Bancshares (Nasdaq: CBSH  ) 12.7 1.46 2.6% 23.5%
BOK Financial (Nasdaq: BOKF  ) 12.8 1.23 2.3% 21.6%
UMB Financial Corp. (Nasdaq: UMBF  ) 13.7 1.21 2.3% 13.8%
Regional Averages 15.2 0.93 2.1% 16.2%

Source: FinViz.com, TTM = trailing 12 months.

International Bancshares started out in 1966 to serve small businesses in Laredo, Texas, and has since expanded to more than 275 branches in Texas and Oklahoma. It was also ranked as the No. 1 Hispanic-led financial institution in the country. International Bancshares is proud that it has "never experienced a down year" -- presumably meaning an annual loss -- and continues to inspire confidence among customers. The future won't necessarily be just like the past, but the bank's success in previous years bodes well for investors looking at the company. Our resident banking expert, Anand Chokkavelu, recently added BancFirst and International Bancshares to his real-money Rising Star Portfolio.

Regional opportunities abound!
Other Fools point to great values in some of the larger banks, and I couldn't agree more. However, there are many great opportunities in some of the regional banks. I will be paying special attention to International Bancshares and adding it to My Watchlist. Feel free to do the same.

Fool contributor Robert Eberhard owns no shares in the companies mentioned here. Follow him on Twitter, where he goes by @GuruEbby. The Motley Fool owns shares of International Bancshares and BancFirst. Motley Fool newsletter services have recommended buying shares of International Bancshares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 06, 2011, at 3:25 PM, Onigato wrote:

    This is the bank where I do my banking. They have customer friendly hours, extending well past the normal 9-5 Monday through Friday. Weekends, holidays, many branches are open 365 days a year, though with reduced hours on holidays.

    Their fee schedule isn't the lowest, but it is far from the highest I've ever worked with. I recently had a small problem arise with my account, and not only did they make right, they also refunded the third party fees that I was charged because of the error.

    This bank has my loyalty, and if they keep this kind of habit up, my stock picks as well.

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