Several Texas banks are poised to capitalize on commercial loan growth as the economy in the nation's second-largest state improves.
In a research note published Wednesday, Kerstin E. Ramstrom of Bear Stearns & Co. Inc. initiated coverage on seven small-cap banks headquartered in Texas and said some of them have "continued to benefit from" commercial and industrial loan growth.
Ms. Ramstrom rated two of the seven companies "outperform," two "underperform," and three "peer perform," the equivalent of "market perform."
Three companies in particular, Cullen/Frost Bankers Inc., Southwest Bancorp. of Texas Inc. (soon to be renamed Amegy Bancorp.), and Texas Capital Bancshares Inc., are especially strong in C&I lending. At each of the three commercial and industrial loans makes up 40% to 50% of the loan portfolio, Ms. Ramstrom wrote.
In contrast, large-cap banks' C&I volume has fallen since 2001 as larger borrowers have accumulated cash, Ms. Ramstrom wrote. Indeed, January 2005 was the first time "large-cap domestically chartered banks experienced positive loan growth," she added.
Analysts said that these banks has been successful in both organic loan growth as well as grabbing share from larger companies in their market such as JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co.
Ms. Ramstrom wrote that the $10 billion-asset Cullen/Frost, rated "peer perform," has "attempted to position itself as the local Texas bank of choice for larger commercial credits." Other small banks typically concentrate on small and midmarket lending, she added.
A good 83.5% of the San Antonio company's loan portfolio is commercial, with 48% in commercial and industrial loans, Ms. Ramstrom wrote.
Southwest Bancorp typically makes loans of $1 million or more, which allows it to compete with some of the larger banks, said Peter Winter, an analyst at Harris Nesbitt Corp.
The loan pipeline in this range is growing and pricing is competitive, but banks like Southwest offer more personalized service and "big-bank-type" products, Mr. Winter said in an interview Thursday. But smaller banks' poaching of bigger ones' lending teams has slowed, he said.
Southwest Bancorp, which Ms. Ramstrom rates "peer perform," will be one of the top companies to profit from increased corporate borrowing, she wrote. Eighty percent of the $7.5 billion-asset company's $4.5 billion loan portfolio is commercial, and 45% of that is C&I, according to Ms. Ramstrom.
Southwest chief executive Paul Murphy Jr. said in an interview Thursday that the commercial lending environment is "very competitive and there is certainly margin pressure, but over all the economy is growing and expanding."
Southwest sees lending opportunities particularly in industries like oil and gas, transportation, and manufacturing, and it has been attracting lending teams from some of its bigger rivals, he said.
"We're big enough to have competitive pricing, a strong loan limit, very sophisticated products especially on the treasury management side," Mr. Murphy said. "But we're still small enough that we can really get to know our customers."
Southwest, which is expanding in Texas and may expand elsewhere, renamed its bank subsidiary Amegy Bank of Texas on March 7. It plans to rename the holding company after May's shareholder meeting.
A spokeswoman said that Cullen/Frost executives would not be available by press time to comment on the Bear Stearns note. Texas Capital did not return phone calls before press time.
Shares of Southwest rose 0.1% Thursday. Cullen/Frost fell 0.1% and Texas Capital rose 0.4%.
