At many U.S. banks, such as Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC), the dramatic plunge in oil prices over the past few months won't have a significant impact on stock prices. Those two banks are huge, diversified, and hedged against volatile commodities.

Other banks aren't so lucky. One of those is Prosperity Bancshares (NYSE:PB), headquartered in Houston, with its $21 billion in total assets.

The trend is your friend, until it bends at the end
Before we dive into the concerns about this bank, let's first look at how well it has done over the past several years. The stock price tells the story.

PB Chart

PB data by YCharts

That success is directly linked to the North American oil boom and the strength of the Texas economy.

Since 2007, Texas has seen better employment numbers and higher GDP growth than the rest of the United States. That economic strength has benefited individuals and businesses in the state, including Prosperity.

Texas Unemployment Rate Chart

Texas Unemployment Rate data by YCharts

Texas GDP Chart

Texas GDP data by YCharts

But now, in the face of rapidly falling oil prices, the trend has stalled and is likely to reverse.

The Dallas Fed Manufacturing Outlook Survey for December observed a slowdown in manufacturing orders and no increase in the hours worked in that sector. Unemployment in the mining sector rose 1.5% in November, an early signal of pullbacks in the Texas oil fields.

Worse yet, the number of oil rigs in the state was stable in November and December before dropping markedly in January. That means the real economic and employment impact has been a lagging consequence of falling oil prices, but it's coming nevertheless.

The worst is still to come for Prosperity as well
Both investors and management of Prosperity Bank recognize the likely deterioration coming for the Texas economy, and both are responding in turn. Investors have sent the stock's price down 24% from its November highs.

Management spoke to this trend and tried to respond to concerns about the bank's fourth-quarter conference call last week. Many observers, including me, left the call more concerned than relieved.

In his opening remarks on the call, CEO David Zalman tried to allay concerns, citing the bank's continued credit-quality strength and pointing to the diversification of Texas' economy. He also noted that management "expects it may take six to nine months to feel the impact of lower oil prices."

That sentence precisely identifies the fear. Credit quality metrics only show the bank as it is right now, a snapshot in time. Strong credit quality today does not predict strong credit quality tomorrow. The economic indicators mentioned, however, do imply future problems.

CFO David Hollaway reported that the bank has about 5.6% of its total loans directly related to the energy sector. It's reasonable to assume that a much higher percentage is indirectly affected by the sector. 

Source: Company website.

Consider, for example, the bank's exposure to commercial real estate, which, as of Sept. 30 (the most current regulatory filing with the FDIC) accounted for 31% of the bank's total loans. Throughout the bank's footprint, oil companies are a huge driver of office space occupancy rates. Halliburton (NYSE:HAL) for example, occupies over 2 million square feet of office space and 2.7 million square feet of industrial space in Houston alone!

A fallout in commercial real estate, driven by energy sector companies, could easily spill over into the broader market, spiking vacancy rates or tanking lease rates. Just like that, a seemingly unrelated real estate loan could suddenly become cash flow-negative and default on its payments. 

Or consider that Prosperity reports that over 25% of its loan portfolio is composed of homes secured by 1-4 family home loans. With any amount of scaling back would certainly come job cuts that could impact the entire community, including those who owe Prosperity loan payments.. 

Again, it is a reasonable expectation that a certain portion of those loans could wind up in foreclosure as families lose income from lost jobs or furloughed hours. It is impossible to forecast exactly how far reaching a pull back could go at this point; as the bank's CEO pointed out, it will likely be at least six months before the real damage is visible.  

What's next for Prosperity Bancshares?
The deck may be stacked against Prosperity in the short term, but the long-term outlook isn't necessarily negative. Management has experience going back to the Texas oil and gas crisis in the 1980s -- they've managed through this type of situation before. And, considering how volatile commodity prices can be, it's no sure thing that oil prices will even stay at the current low levels for a prolonged period of time.

Even further still, Zalman could be right about the diversified Texas economy, more capable than ever to withstand this temporary shock.

The stock currently trades at 1.02 times book value, a cheap level for a bank by conventional standards. For savvy investors, Prosperity Bank is a stock to watch closely. The recent decline in the stock price is justified, but it won't be down forever. Once the dust has settled and the industry has stabilized, Prosperity may present a nice, value buy. Only time will tell.