Texas banks firmly on saddle for a comfortable ride

By Brenton Cordeiro and Jochelle Mendonca – Analysis

BANGALORE (BestGrowthStock) – Texas banks are emerging from the recession in a far better shape, thanks to the lessons learnt from the crisis they faced two decades ago.

The banks of the Lone Star State are expected to outshine peers in other states this year as they adopted stricter lending standards, after burning their fingers in the savings and loans crisis in the 1980s, triggered by loose lending.

“Texas banks are taking much smaller haircuts on non-performing loans, so charge-offs and reserves required have been much less,” analyst Robert Patten of Morgan Keegan said in an email.

Texan banks such as Cullen/Frost Bankers Inc (CFR.N: ), Prosperity Bancshares Inc (PRSP.O: ), Comerica Inc (CMA.N: ), Texas Capital Bancshares Inc (TCBI.O: ) and First Financial Bancshares Inc (FFIN.O: ) are expected to be the strongest of the lot, according to some analysts.

Cullen/Frost and Prosperity did not even take the bailout money from the U.S. Treasury.

“Very few (Texan) banks took the money. And the few that did, most have paid it back,” said analyst Bain Slack of Keefe, Bruyette & Woods.

Also, healthy balance sheets of most of the Texan banks could cushion any possible losses arising from commercial real-estate loans, which many fear have the potential to go sour and take a toll on a number of banks.

Given the capital levels and earnings power of these banks, they can easily absorb losses coming from this sector, Raymond James analyst Michael Rose said.

The Texas economy, backed by its oil business, also held up relatively well compared with other states — home prices did not tank during the downturn and the state lost fewer jobs.

In December last, the unemployment rate in Texas stood at 8.3 percent, while in California, which has the biggest economy among the U.S. states, the rate was 12.4 percent.

Also, foreclosure rates in Texas were one in every 785 mortgages in January, compared with one in 187 for both Florida and California.


Of the nearly 200 banks that went into FDIC-receivership since January 2008, only eight are from Texas, while California and Georgia had around 20 failures each.

Analysts say some small Texan community banks may go under this year, but the bigger ones will be on the prowl for possible acquisitions.

Earlier this year, Prosperity said it was buying three Texas branches of U.S. Bank, a unit of U.S. Bancorp (USB.N: ), and 19 retail bank branches of First Bank, a unit of First Banks Inc (FRBA.OB: ).

However, with fewer failures expected in Texas this year, buyers interested in regulator-assisted deals may look outside the state — mainly at banks in the neighborhood like New Mexico, Arkansas, Oklahoma and Louisiana, analysts say.

The rebound in oil prices from last years’ lows and the expected stabilization of prices through 2010 would further boost the state’s economy and increase employment levels, which are already higher than most states in the United States.

“There will be a willingness to invest in business, in real estate and all that will lead to greater demand for banking products and enable banks to finally show organic growth on their balance sheets,” Terry McEvoy of Oppenheimer said.

Oil prices have more than doubled from their lows in December 2008 and the NYMEX crude was trading at $81.65 Tuesday afternoon.

Analysts see loan-growth at Texas-based banks improving this year. Loan growth is expected to be largely flat in the United States, but Texan banks are expected to “outpace the nation” and see mid- to high-single-digit loan growth, they say.

“I think there’s opportunity for some of the smaller well-capitalized banks to pick off share from the largest banks,” Raymond James’ Rose said.

Customers are up for grabs from banks like Bank of America Corp (BAC.N: ), JPMorgan Chase & Co (JPM.N: ) and Wells Fargo & Co (WFC.N: ) that together have over half the deposit share in the state, he added.

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(Editing by Anil D’Silva and Gopakumar Warrier)

Texas banks firmly on saddle for a comfortable ride