America's Best And Worst Banks 2014

America's Best And Worst Banks

This year the U.S. banking industry continued its slow recovery from its nadir in 2010, as banks cleaned up their balance sheets and reduced nonperforming loans and assets. There were only 24 bank failures in 2013, versus 51 last year. Failures peaked at 157 in 2010. The FDIC's "Problem List" of banks shrank to 515 from 694 a year ago (it was 888 in March 2011).

Yet there is still a broad disparity between the best and worst banks. In order to gauge the financial health of the 100 largest U.S. banks and thrifts, Forbes turned to Charlottesville, Va.-based financial data provider SNL Financial for information on asset quality, capital adequacy and profitability. The data is based on regulatory filings through the third quarter of 2013. SNL provides the data, but the rankings are done by Forbes (click here for a more detailed methodology and a complete ranking of the 100 largest banks).

Leading the way is Prosperity Bancshares, which also ranked first in 2011. The $16 billion bank has 218 locations, with one-quarter of them in the Houston area, where it is headquartered. The bank has only six branches outside of Texas. The share of Prosperity's loans that are nonperforming (0.1%) and assets that are nonperforming (0.1%) both rank among the three lowest in the banking industry. Its level of reserves/NPLs is an eye-popping 1,144%. Prosperity ranked in the top 10 in five of the nine metrics we evaluated the banks on.

Prosperity skirted the housing crisis for the most part thanks to the resilient Texas economy, and it has been snapping up other Texas banks. Its latest acquisition is FVNB, completed last month. Prosperity also reached a deal to acquire Tulsa, Okla.-based F&M Bank. FVNB and F&M had combined assets of $4.9 billion as of the third quarter.  Acquisitions have helped fuel revenue growth of 30%, fourth best among the 100 biggest banks. The stock is up 42% year-to-date and trades at 1.6 times book value.

Full List: America's Best and Worst Banks

Signature Bank moves up one spot from last year to No. 2 in our ranking. The New York-based bank is one of the most profitable financial institutions, with a return on average equity of 12.7% for the latest 12 months. State Street State Street fell two places after ranking first last year. The $217 billion firm has the lowest levels of both nonperforming loans and assets of any bank.

"We are on the backside of the crisis and companies are starting to look for growth," says SNL bank analyst Tyler Hall. It hasn't been easy given rock-bottom interest rates. Only 44% of banks with more than $1 billion in assets increased revenue in the third quarter, according to SNL. It is even worse for the biggest banks. M&T Bank M&T Bank was the only one of the 27 banks with more than $25 billion in assets to increase revenue in the most recent quarter.

With the search for growth in mind, we tweaked the methodology of this year's list for the first time since we began ranking the largest banks in 2009. We added revenue growth as an equally weighted component to the other eight metrics (Prosperity would have ranked first under the previous methodology as well). The average revenue growth for the 100 largest banks was just 1.1% over the last 12 months.

While banks search for growth, they also are bracing for new regulatory policies like the Volcker rule and Basel III. "The regulatory concern is out there," says Hall. "Banks are spending significant time and money looking at how it is going to impact them." Zions Bancorp Zions Bancorp announced this week it would sell some collateralized debt obligations that it can no longer hold due to the Volcker rule, taking a charge of $387 million to write down the value of the securities.