As oil prices have continued to fall since the 52-week high last summer, the fallout in other sectors is becoming increasingly visible. As a state, Texas puts a huge importance on oil and the energy trade because regardless of the business or sector almost everything in the state is affected by oil, whether directly or indirectly. Sterne Agee detailed in a report that Texas banks could have a negative reaction to oil prices, as lending to oil companies might spiral down the drain.

24/7 Wall St. has noted earlier that as oil prices continue to drop there will consequences for the some of the largest companies in the world, all the way down to the little guy buying gas.

Assuming that oil goes lower than $60, it will cause some cash flow issues with weaker companies, which could stress credit facilities. However, the pricing would have to be sustained at this lower level for roughly a year to see the impact — and there is no assurance that oil will fall that far.

The Sterne Agee report indicates that the Texas bank premium is at risk if lending growth slows or energy affects the economy. Its view is also that the past two trading sessions could prove to be an overreaction unless oil trends lower, which could cause a more negative sentiment on the state of the economy and a heightened concern about credit quality. There is a pullback in the group overall, but Sterne Agee is most constructive on Prosperity Bancshares Inc. (NYSE: PB), Comerica Inc. (NYSE: CMA) and Independent Bank Group, Inc. (NASDAQ: IBTX) in Texas.

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Texas Capital BancShares Inc. (NASDAQ: TCBI) has experienced a handy decline in the past week, as has BOK Financial Corp. (NASDAQ: BOKF). Hilltop Holdings Inc. (NYSE: HTH) has not pulled back but stands out as attractive and less at risk in the opinion of Sterne Agee.

Sterne Agee’s analyst Brett Rabatin noted in the report:

In a conversation with one of our Texas banks last week, we noted that the CEO indicated energy was likely to be a minimal, if any, contributor to loan growth in 4Q14. Also, if energy continued to be at lower prices (below $85) next year, it could take at least several percentage points off of loan growth potential for the year.

It is also worth noting that most banks were conservatively basing price decks of oil in the mid-$70s, before oil dipped below $90 in September. Sterne Agee further said:

We have heard a lot of lenders the past two weeks talk about companies still making money for the near-term but reducing budgets, reducing debt, and pulling back. Texas still looks good, but it clearly being the place to be could reduce out-of-state interest in being a buyer of franchises in the state. Nonetheless, we have heard of increased activity potentially happening in the $500 million to $1 billion range. Oddly enough we are fairly bullish on M&A activity increasing despite all the market concern about energy.

Prosperity has seen its shares fall roughly 13% to Monday’s close of $53.22 from a relative high of $61.15 in mid-November. In Tuesday’s trading, shares were up about 1.5% at $54.06 at the opening bell. The stock has a consensus analyst target price of $64.53 and a 52-week range of $52.93 to $67.68. The market cap is over $3 billion.

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Comerica shares fell 8% to Monday’s close of $45.23 from a relative high of $49.20 in mid-November. In early Tuesday trading, shares were up 1% at $45.74. The stock has a consensus target price of $49.85, and its 52-week range is $42.73 to $53.50. Comerica has a market cap of $8 billion.

Independent Bank Group declined more than 9% to Monday’s close of $41.01 from a relative high of $45.40 in mid-November. Shares were up 1% at $41.41 at Tuesday’s opening bell. The consensus target price is $52.17, and the 52-week range is $41.00 to $61.49. The company has a market cap of $698 million.

Texas Capital BancShares has seen its shares fall 14% to Monday’s close at $53.14 from a relative high of $62.07 in early November. In Tuesday’s trading shares were up about 0.5% at $53.41 at the opening bell. The stock has a consensus analyst target price of $64.09 and a 52-week range of $49.90 to $67.08. It has a market cap of $2 billion.

BOK has seen its shares fall 12% to Monday’s $60.76 close from a relative high of $69.11 in early November. In Tuesday’s trading, shares were up less than 1% at $61.18. The consensus analyst target price is $70.33. The 52-week range is $60.41 to $71.10. BOK has a market cap of $4 billion.

Hilltop Holdings shares have fallen 9% as of Monday’s close of $20.15, from a relative high of $22.20 in early November. Shares were relatively flat at $20.16 at Tuesday’s opening bell. The stock has a consensus analyst target price of $26.00, and shares have traded in a 52-week range of $19.32 to $25.61. The market cap is nearly $2 billion.

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This might not sound like Sterne Agee has called a bottom. That being said, the firm is at least trying to set up a playbook for how to view these Texas and oil-lending related banks. Stay tuned.

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