3 Great Banks in America's Best Business States

 | Jul 14, 2016 | 1:10 PM EDT
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CNBC's annual "Top States for Business" list came out this week, and it occurred to me that if a state is a great place for business, then it's probably also a fantastic place for banks. So, let's use my next two columns to look at promising bank stocks in the five highest-ranked states -- Utah, Texas, Colorado, Minnesota and North Carolina.

I'll look today at some good publicly traded banks in Utah, Texas and Colorado, and use a future column to run down promising financial firms in Minnesota and North Carolina.

Utah only has two publicly traded banks, and I like Peoples Utah Bancorp  (PUB) , which is based in the booming community of American Fork.

PUB has 19 branches around the state and about $1.5 billion in assets. It's a well-run little bank, with a better-than-average efficiency ratio of 0.56 and an above-average return on assets of 1.44%. The firm's loan portfolio also skews heavily towards industrial and commercial-real-estate loans, which is a big plus for a bank that's located the country's most business-friendly state.

Unfortunately, PUB isn't cheap at a 1.48x current book value. But if you value earnings, the stock's P/E ratio is just 15. That's eminently reasonable for a well-run, high-growth community bank.

Now, I'm not personally capable of chasing a stock higher. But PUB could make a strong addition to my long-term portfolio the next time the bank's stock price pulls back.

Picking a good Texas bank to invest in is easy, as I'm a big fan of Green Bancorp (GNBC) , which I've already been buying over the past month.

GNBC operates in the major Texas metro areas of Houston, Dallas and Austin, but has recently exited energy lending and is disposing of all energy-related loans. In their place, the bank's portfolio heavily favors commercial real estate and commercial and industrial loans. This should be a huge positive for the firm.

CEO Manny Mehos founded, expanded and sold a different bank in the past, creating outsized gains for his shareholders -- and I expect this scenario will eventually play out again at Green Bancorp. Private-equity investors own a little more than 13% of GNBC's shares, and they probably have their eye on a future sale of the bank as well.

There's only a very small handful of publicly traded banks in the Centennial State, and National Bank Holdings (NBHC) is my pick.

The bank has 99 branches and some $4.6 billion in assets, with 1.73% of that considered nonperforming. NBHC has also done a smart job of growing by acquisition, and has also been aggressive with stock buybacks. Since 2013, the firm has repurchased 45% of its shares outstanding at a $19.87 weighted average price (the stock currently trades at around $21).

Commercial-real-estate and and commercial/industrial loans make up about 50% of the firm's loan portfolio, while single-family mortgages account for another 22%. That's good news in a state that CNBC's study found had America's No. 1 workforce.

Another potential plus for Colorado banks is the state's legalization of marijuana sales, which currently contradicts federal law. Colorado's legal pot shops generally can't use the traditional banking system right now, but I believe that will change if and when the U.S. government inevitably takes marijuana off the federal illegal-drug list.

Colorado retailers legally sold almost $1 billion of marijuana last year, and that doesn't even include smoking supplies and accessories. The second that the federal government legalizes their business, banks will want to serve the industry -- and I expect a bit of a "gold rush" to get into the state's banking market.

National Bank Holdings would make a perfect target for a larger regional bank that's looking to move into the state. The bank currently trades at a modest 1.15x book value, but any transaction would undoubtedly occur at a much higher multiple.

On the downside, NBHC does have about $132 million of energy exposure on its books. It also earns just a 0.14% return on assets -- much lower than its peer-group average of 1.03%.

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