Finding Value in Southwest Regional Banks

Last month, I took a look at some regional banks, breaking it down by region. When I looked at the Southwest region, I found eight banks that I thought would be good investments. Now that earnings season is mostly over, I thought it would be a good time to see whether the quarter helped any banks move or enter the rankings. Regional banks might also see an increase as customers of larger banks vote with their feet and move to local banks.

What is the Southwest?
When looking at the regional banks, it is important to note that some of the regions have some overlap. The Southwest region is really just a three-state area, dominated by Texas. Five of the eight banks on my list are based in Texas, including regional leader Southside Bancshares (Nasdaq: SBSI  ) . Oklahoma and Missouri are represented here as well, with two banks and one bank, respectively.

Screening factors
As I did previously, I will rank 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.

Profitability is important, so I first eliminated all banks without earnings over the past 12 months, looking for the cheapest bank according to this metric. My second factor is the P/B ratio. In the banking industry, a value of 1.5 is reasonable, and the adage I like is "buy at half, sell at two." Only banks that pay a dividend will be included -- the higher the payout, the better. Finally, net income margin will be used as another method of comparing the banks' profitability.

There are eight banks that meet my criteria from the Southwest region, as well as Southside Bancshares, which my screener places in the Mid-Atlantic, even though it is located in Tyler, Texas. The top eight follow:

Company

P/E Ratio (TTM)

P/B Ratio

Dividend Yield

Net Income Margin

Southside Bancshares 9.0 1.30 3.5% 29.4%
Propsperity Bancshares (Nasdaq: PRSP  ) 12.6 1.13 2.1% 36.2%
International Bancshares (Nasdaq: IBOC  ) 9.9 0.71 2.3% 24%
Cullen/Frost Bankers (NYSE: CFR  ) 13.9 1.33 3.8% 24.9%
BancFirst (Nasdaq: BANF  ) 12.6 1.13 3.1% 19.5%
Commerce Bancshares (Nasdaq: CBSH  ) 12.8 1.50 2.4% 24.4%
First Financial Bankshares (Nasdaq: FFIN  ) 14.5 1.91 3.1% 33%
BOK Financial (Nasdaq: BOKF  ) 12.8 1.29 2.5% 22.9%
         
Regional averages 13.5 0.99 2% 17.5%

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

Quarterly results cause changes
I overlooked Southside Bancshares in my previous article because of its placement in the wrong region in my screener. Nevertheless, it is in the top five of all four ranking criteria, pushing previous leader International Bancshares down a few spots. Prosperity Bancshares was able to bypass International Bancshares after increasing its net income margin 0.8% from 35.4%, while International saw its decline 0.5% to 24%.

Regional opportunities abound!
While the real lesson from Bank Transfer Day will be learned in the coming months, regional banks offer a better investment in the months ahead. Keep an eye on Southwest leader Southside Bancshares by adding it to your free, personalized version of the Fool's My Watchlist today.

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. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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