As oil and gas prices continue to plunge, they are taking the price of bank stocks that operate in energy-producing regions with them.
Banks that have exposure to the industry are falling out of favor very quickly. The threat is not just from direct loans to energy companies but the mortgage loans made to oil company employees, or commercial real estate loans to companies that will struggle if the local oil-dependent economy collapses.
Auto loans, credit cards and other personal loans made to people in regions that have high oil production may also see higher default rates.
With these fears in mind, investors have been dumping bank stocks in the energy-producing regions … but one class of investors has not been selling and is instead buying. I am seeing insider buying in oil-region banks, indicating that the folks running the banks are comfortable with their exposure.
Independent Bank Group Inc (IBTX)
Independent Bank Group is right in the heart of Texas oil country. They have 39 branches in Central Texas, Houston and Dallas and 5.9% of the loan portfolio is to energy related companies.
CEO David Brooks talked about energy concerns on the last conference call, telling investors that “We also made a decision during the quarter to take an additional provision for loan loss to minimize uncertainty in our energy portfolio. The increase in the reserve positions us well should oil prices stay low for an extended period. We remain confident in our overall asset quality and are taking the additional provision as a conservative approach given challenges in the energy markets.”
Insiders do not seem too concerned, as five different officers and directors have made open-market purchases of the stock recently. The market is clearly concerned, as the shares have fallen nearly 30% in the last three months but management seems to have matters well in hand for now.
Nonperforming assets are just 0.35% of total assets.
Southwest Bancorp, Inc. (OKSB)
With 18 branches in Oklahoma and seven in Texas, Southwest Bancorp, Inc. is also in oil country and subject to the economy effects of falling oil prices.
The bank has not been making any new energy loans recently, and thanks to payoffs in the third quarter, energy loans are now just 4.4% from 5.5% in the second quarter. The stock has been falling recently, partly as a result of energy concerns, but the bank is actually in pretty good shape. They just closed on their latest acquisition in October, and we are seeing some insider buying in recent months.
Two directors were buying as recently as December. The bank itself has repurchased 644,300 shares for a total cost of $10.7 million as of the end of the third quarter of 2015. Management said that once the recent acquisition closed in October they have once again begun to repurchase shares.
Southside Bancshares, Inc. (SBSI)
Southside Bancshares, Inc. is located in Tyler, Texas, and has 60 branches in the Dallas region, East Texas and Austin.
The shares have been hammered in the past few months, falling by almost 25% as investors abandon banks in oil-producing regions of the country.
While they may do business in Texas, their actual energy exposure is small. According to the latest report, oil and gas exposure in the loan portfolio remained minimal with direct oil and gas exposure of 1.48% of the loan portfolio and total direct and indirect oil and gas exposure of 2.69% of the loan portfolio.
While some may be concerned that economic spillover from low oil prices may hurt the overall loan portfolio, there is no sign of it happening so far, as nonperforming assets are just 0.7% of total assets. Four different insiders were buying the stock in December, so it would appear they believe the bank can thrive in a low-oil-price environment.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
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