3 Bank Stocks to Watch Amid Low Oil Prices

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Crude oil’s slide will have the commodity finishing out the year under $55 per barrel — a curse on a swath of energy investors, but a boon for many with holdings in bank stocks.

crude oil usoMost investors in bank stocks should be thrilled with this unintended consumer stimulus that begot a slew of upbeat economic news. Real GDP was up 5% for the third quarter, and real disposable personal income increased 0.5% in November, compared to 0.3% October and 0.1% in September.

Moreover, cheap oil means fewer bad loans and greater overall confidence, which in turn leads to more robust economic activity, which in turn generates greater loan volumes and drives bank earnings higher.

Of course, not all bank stocks are partying over cheap fuel.

See, larger institutions like the big four U.S. banks — Bank of America Corp (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc (C) and Wells Fargo & Co (WFC) — have well-diversified portfolios of consumer and industrial loans that will benefit from the economic stimulus, offsetting any losses in the energy sector.

However, there are a number of small banks out there that specialize in financing for energy companies, and could feel just as much hurt as the broader energy sector should oil prices fail to recover soon. Here’s who you should watch out for:

Bank Stocks to Watch: BOK Financial Corporation (BOKF)

Bank Stocks to Watch: BOK Financial Corporation (BOKF)BOK Financial Corporation (BOKF) is a $4 billion bank based in Tulsa, Oklahoma, and its exposure to the energy sector is considerable. As of Sept. 30, it had loans outstanding of $13.7 billion, with an almost 19% concentration in the energy industry.

However, BOK Financial is well-run bank that generates about 45% of its income from fee-based business, which makes it less susceptible to interest rate swings, has high credit standards which have allowed it to yield minimum loan losses, and it is well-capitalized with a common equity ratio of 13.5%.

Moreover, BOK Financial offers a 2.8% dividend yield and has a consensus price target of $71 — about 17% above its current trading range. Along with relatively poor Q3 results, oil prices had BOKF stock in an oversold position earlier in December, so it looks like the market is already baking in the low-price environment.

No panic selling is necessary here. Current investors should hold their positions, but keep an eye out for any sign of a weakening loan portfolio in quarterly results.

Bank Stocks to Watch: Cullen/Frost Bankers, Inc. (CFR)

Bank Stocks to Watch: Cullen/Frost Bankers, Inc. (CFR)Cullen/Frost Bankers, Inc. (CFR) is a $4.5 billion bank based in San Antonio.

Cullen/Frost is known as the “Texas Bank,” and what drives Texas is oil. Like BOF, CFR has heavy exposure to energy — as of Sept. 30, it had loans outstanding of $10.7 billion, of which 14.9% were concentrated in the energy industry. In fact, energy is the only industry whose loans are concentrated at more than 10%.

So the bank is a true beneficiary of the booming Texas economy; however, that’s also its weakness, thanks to its exposure to energy across consumer, commercial and industrial fronts. Low oil prices will most likely put a damper on any economic growth in Texas for 2015, effecting Cullen/Frost’s bottom line.

CFR has its positives. It boasts a low year-to-date charge-off ratio of 0.08% and high asset quality. Moreover, its current yield is nearing 3% thanks to its recent beating on news of lower oil prices.

However, new money shouldn’t be tempted by the dividend — the potential risk isn’t worth the reward given the certainty in this stock.

Anyone currently holding should continue to do so and at least wait for a return to normalcy before thinking about taking any money off the table to mitigate risk.

Bank Stocks to Watch: Hancock Holding Company (HBHC)

Bank Stocks to Watch: Hancock Holding Company (HBHC)Hancock Holding Company (HBHC) is a $2.53 billion bank based in Gulfport, Mississippi, that also sports energy loans outstanding in the mid-teens — about 13% of $13.2 billion.

Hancock Holding has already started to feel the burn, with its most recent earnings report showing a 5.5% decline in net revenue QOQ, and a 5% decline in net interest income YOY.

HBHC’s 3.2% dividend yield has been driven higher thanks to a 16% loss in 2014, and the company looks to continue underperforming the broader market in the year ahead if oil prices don’t shore up.

This appears to be the riskiest of the three stocks — investors should pare their losses and reinvest in higher-potential stocks with similar yields.

As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/3-bank-stocks-watch-falling-oil-prices/.

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