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Sterne Agee Sees Trouble For Oil Patch Regional Banks

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The 1980s oil bust turned Texas into a real estate and banking wasteland, but the recent 20 percent drop in petroleum prices is unlikely to produce a similar scenario, a Sterne Agee analyst said Tuesday.

But lower oil prices could still spell trouble for regional banks in areas tied to the current energy boom.

Courtesy of so-called fracking technology, the current oil and gas boom extends well beyond the comparatively diversified Texas economy and now includes much of Appalachia, including Pennsylvania and western New York. Other affected regions include parts of the Rockies and western Dakotas.

If oil prices continue to fall and hit around $80 a barrel, energy experts say production would slow and "there could be some negative consequences" for regional banks, according to Sterne Agee banking analyst Terrance McEvoy.

Crude oil futures fell 4.6 percent Tuesday to $81.84 a barrel, the lowest level since 2012.

"Investors may begin to question the health of real estate and local economies in those areas if oil prices don't rebound," McEvoy said.

Regional and local banks have benefited from the boom not by loaning money to the likes of Exxon Mobile Corp., (NYSE: XOM) but by financing of new hotels, restaurants, hotels and apartments.

Among a slew of small, publicly traded banks in the nation's new oil patch, McEvoy singled out several for their exposure to local real estate.

  • City Holding Company (NASDAQ: CHCO), Cross Lanes, West Virginia, has 89 percent of its loan portfolio tied to local real estate.
  • Northwest Bancshares, Inc. (NASDAQ: NWBI), Warren, Pennsylvania, has 84 percent of lending tied to real estate.
  • WesBanco, Inc. (NASDAQ: WSBC) has 73 percent of its portfolio in real estate.
  • S & T Bancorp Inc (NASDAQ: STBA) reports 68 percent of lending related to real estate.
  • United Bankshares, Inc. (NASDAQ: UBSI), Charleston, West Virginia, has 67 percent tied to real estate.
  • Independent Bank Group Inc (NASDAQ: IBTX), McKinney, Texas, with 63 percent of its portfolio in local real estate.

Latest Ratings for CHCO

DateFirmActionFromTo
Mar 2017Initiates Coverage OnNeutral
Jan 2016Initiates Coverage onEqual-Weight
Oct 2015MaintainsMarket Perform

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Posted-In: Sterne Agee Terrance McEvoyAnalyst Color Commodities Markets Analyst Ratings

 

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