Texas’ energy sector may not yet have fully recovered from last year’s plunge in oil and gas prices, but the rest of the state’s economy appears to be doing just fine.

That message that came through loud and clear Wednesday on the earnings calls of Cullen/Frost Bankers in San Antonio, Prosperity Bancshares in Houston and BOK Financial in Tulsa, Okla.
All reported healthy loan growth in the state in 2016 and all predicted even stronger demand for commercial, consumer and residential and commercial real estate loans this year. Even with some energy firms still struggling, bankers seemed confident that the Texas economy would remain one of the nation’s strongest in 2017.

“We have places like Austin that's on fire, Dallas on fire,” David Zalman, chairman and CEO at Prosperity, said during a conference call.

The region’s bankers were far less optimistic this time last year, when even their non-energy clients seemed on edge about the health of the overall economy. And of course their tone could change if oil prices take another nosedive.

"With the stability we've seen in oil and gas markets," BOK Financial is ready to accelerate energy lending, said CEO Steve Bradshaw. Cullen/Frost's loan growth was "split between C&I, commercial real estate, and public finance," said CEO Phil Green.

But for now, these Southwestern lenders like what they are seeing. Here’s a closer look at their fourth-quarter results and what they expect in 2017.

BOK Financial

The $33 billion-asset BOK Financial said that total loans in the quarter rose 6.5% from a year earlier, to $16.7 billion, with the increases coming in business, commercial real estate, residential mortgage and personal loans.

BOK has scaled back its energy lending in recent quarters, but improving credit quality has the company once again looking to make more loans in the sector, President and CEO Steve Bradshaw said during a Wednesday conference call.

“With the stability we've seen in oil and gas markets for the past six months, we expect to see markedly lower credit costs,” he said.

BOK is ridding itself of risky loans to the energy sector and replacing them with new energy loans. Potential problem energy loans fell $53 million to $308 million in the fourth quarter, compared to the third quarter. During the same period, unfunded energy loan commitments grew by $424 million.

And BOK has expanded lending in all categories at its Bank of Texas unit, which has branches in Houston and Dallas. Commercial-and-industrial loans at Bank of Texas rose 3% to $4 billion in the fourth quarter from the same period in 2015. Commercial real estate at Bank of Texas rose 18% to $1.4 billion.

BOK expects to tap the brakes on commercial real estate lending by the middle of this year, as it’s reaching its concentration limit for that category, Stacy Kymes, executive vice president of corporate banking, said during the call.


Total loans at the parent Frost Bank rose 3% to $11.7 billion in the fourth quarter, compared to the previous year’s period. If energy loans were subtracted, total loans rose 8.2%, said Phil Green, chairman and CEO at the $30 billion-asset company.

Frost is letting problem energy loans run off its books and it does not appear to be aggressively pursuing new energy loans, Matthew Keating, an analyst at Barclays, wrote in a research note. Outstanding energy loans at Frost totaled $1.39 billion at Dec. 31, representing 11.6% of total loans. That’s down from a peak of over 16% in early 2015.

“[Frost] reports seeing some good opportunities within the energy sector, but stressed it is remaining selective,” Keating said.

Frost and other lenders are being particularly careful about moving too fast in Houston, which is more dependent on the oil and gas industry than other markets in Texas and Oklahoma.

“In Houston, total employment is growing modestly,” Frost’s Chief Financial Officer Jerry Salinas said during the call. “Higher oil prices and rig counts indicate an increasingly positive outlook, but energy jobs have yet to follow.”

Still, Frost said that 2016 was its best year for new loan commitments. New commitments for commercial real estate loans rose 18% on a yearly basis and non-energy C&I loans rose 14%.

“We’re pleased to see good growth in our current weighted pipeline, the growth was split between C&I, commercial real estate, and public finance,” Green said.


Loans at Prosperity climbed 2% to $9.6 billion with notable growth in construction and land-development lending. Its rate of growth was the most tepid of the three Southwestern lenders that reported Wednesday morning – not surprising based on its history, said Brad Milsaps, an analyst at Sandler O’Neill.

“They tend to be the most conservative among the Texas banks,” Milsaps said in an interview. “That’s just how they lean on their underwriting and they tend not to do big credits.”

Still. Prosperity is projecting loan growth in the mid-single digits this year.

“Historically we used to run about 8% organic loan growth,” Zalman said during the call. “I don’t know that I want to commit to the 8% this year, but maybe 5% to 6%, we did feel comfortable in saying we should hit that.”

Alan Kline contributed to this article.

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Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.