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Stock Strategist

Our Favorite Texas Banking Franchises

We see two Texas banks with strong fundamentals we'd love to own at the right price.

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There are two Texas banks in our coverage list we think have not only survived the crisis unscathed, but have actually fortified their franchises during the last 18 months. While the downturn has hit all financial institutions,  Cullen/Frost Bankers (CFR) and  Prosperity Bancshares (PRSP) have maintained decent levels of profitability and strong credit quality metrics relative to their peers. We attribute this to the banks' sensible management teams and the resilience of the Texas economy, which has weathered the recession better than other states.

Texas has long been a great place for business as the state's economy has grown steadily over the past decade. Despite strong ties to energy, we think the Texas economy is reasonably diversified across the technology and health-care industries, in addition to its exports. More importantly, it was not hurt by the real estate bubble nor the phenomenal collapse that eventually drowned the rest of the nation. Texas boasts an affordable cost of living and appealing demographic prospects, as its population is expected to grow by more than 20% over the next two decades. Although the Standard & Poor's Case-Shiller Home Price Index only tracks home prices in Dallas, the contrast to the rest of the U.S. is striking.

Maclovio Pina does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.