Texas Oil Patch Banks Might Face Tough Second Half

A further softening of oil prices and potentially unpleasant surprises in loan-loss provisions during the second half of 2015 could imperil petroleum-patch banks, an analyst said Wednesday.

"It's too soon to call the all-clear," Bank of America's Ebrahim H. Poonawala said, noting a rally in the group that followed oil price gains earlier this year.

Although Poonawala maintained Buy ratings on both Texas Capital Bancshares Inc (NASDAQ: TCBI) and Iberiabank Corp (NASDAQ: IBKC), the Houston real estate market faces deterioration while oil companies will soon see favorable price-hedging contracts expire.

The consensus forecast for most energy exposed banks calls for faster loan growth for the rest of the year, but Poonawala said those estimates are at risk.

Indeed, the region's economy is in poor shape by some measures.

The Federal Reserve Bank of Dallas said Tuesday that factory activity in Texas declined in May to its lowest level in six years.

Employment growth flirted with zero in March, and measures of construction and real estate also weakened sharply, the bank said separately earlier this month.

Poonawala reiterated Underperform ratings on Cullen/Frost Bankers, Inc. (NYSE: CFR) and Hancock Holding Company (NASDAQ: HBHC).

With oil prices recovered somewhat from lows earlier this year, "it's tempting to conclude that the U.S. crude market is rebalancing," Poonawala said.

"But this view ignores the fact that U.S. crude and petroleum product inventories are very high," Poonawala added.

The analyst maintained Neutral ratings on Prosperity Bancshares, Inc. (NYSE: PB), Comerica Incorporated (NYSE: CMA) and Zions Bancorporation (NASDAQ: ZION).