trending Market Intelligence /marketintelligence/en/news-insights/trending/pJP-h-yrqvlOrusl1LSQRw2 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us
In This List

Energy exposure curtails US regionals' Q1'16 earnings

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery

StreetTalk – Episode 70: Banks' Liquidity Conundrum Could Fuel M&A Activity


Energy exposure curtails US regionals' Q1'16 earnings

Amongregional banks, Hancock Holding Co.,BOK Financial Corp., andTexas Capital Bancshares Inc.— which all reported elevated energy-relatedprovisions — saw the most substantial year-over-year declines in first-quarter normalizedEPS.

S&PGlobal Market Intelligence examined the financial results of 27 public U.S. banksand thrifts with total assets between $20 billion and $50 billion for the quarterended March 31. The analysis excludes merger targets. The group experienced medianoperating revenue growth of 6.47% year over year, while normalized EPS growth forthe group was flat.

Hancockexperienced an 83.64% drop in normalized EPS year over year. The Gulfport, Miss.-basedcompany recorded a $60 milliontotal provision for credit losses in the first quarter, representing a substantialjump from the company's previous guidance of $11 million to $15 million. Approximately$50 million of the first-quarter provision was related to the energy portfolio.The company projects the full-year 2016 provision to be between $105 million and$145 million. "We have provided updatedannual guidance for 2016 provision rather than quarterly guidance because we expectlumpiness in provision through the year, as evidenced in the first quarter,"said President and CEO John Hairston during the company's recent earnings call.

Hancock'soutstanding energy loans increased 3% quarter over quarter to $1.63 billion, inlarge part because of "late-quarter well-publicized draws on the availablelines from a few large public energy companies." The bank's support non-drillingcategory comprised 42% of the funded exposure at March 31, while support drillingwas at 15%. "Hancock's energy overhang is likely to have a longer tail, inour view, given its higher service exposure relative to other energy-exposed banks,"Raymond James analyst Michael Rose wrote in a research note. Rose added that ifoil prices continue to rise in the second quarter, Hancock "could come in atthe lower-end (or below) of its loan loss provision guidance."

At BOKFinancial, normalized EPS dropped 40.74% year over year. The largest bank basedin energy-centric Oklahoma endured notable setbacks during the first quarter onthe oil-and-gas front.Charge-offs in the sector increased to $22.1 million from $2.1 million in the fourthquarter of 2015. Nonaccrual energy loans increased $98 million during the firstquarter, while potential problem energy credits were up $273 million.

TexasCapital's first-quarter normalized EPS slid 30.00% year over year, suffering froman increase in credit loss provisions related to energy. The Dallas-based company'stotal provision for the first quarter was $28.8 million, up from $12.6 million inthe previous quarter and $10.2 million in the first quarter of 2015. "The decisionto post this front-loaded provision in the first quarter of 2016 does not changethe previous guidance offered on January 20 for the full-year 2016 provision,"which was in "the mid-$60 million range," President and CEO C. Keith Cargillsaid during the bank's earnings call.

Lafayette,La.-based IBERIABANK Corp.improved operating revenue by 24.52%, but also saw deterioration of some creditsin the energy portfolio.Energy-related loans increased $51 million quarter over quarter, and comprised 5.1%of total loans at March 31. Nonperforming energy loans jumped to $46 million, or6.3% of total energy loans, at the end of the first quarter, from $8 million atthe end of 2015. The bank had no charge-offs related to the energy sector in thefirst quarter. Raymond James' Rose believes that IBERIABANK's energy exposure "remainsin control," and that the bank "has also done as good a job at managingits exposure as anyone in the business." Still, the company's management teamdecided against accepting a pay raise this year because of the share price's decline,President and CEO Daryl Byrd said during the bank's earnings call.

In February,Moody's took negative ratings actionson certain U.S. regional banks with relatively high energy exposure. For BOK Financial,San Antonio-based Cullen/Frost BankersInc., Hancock and Texas Capital, the rating agency placed on reviewfor downgrade the long-term ratings, stand-alone baseline credit assessments, adjustedbaseline credit assessments and long-term counterparty risk assessments. Moody'salso affirmed the long-term rating, stand-alone baseline credit assessment, adjustedbaseline credit assessment and long-term counterparty risk assessment of Green Bay,Wis.-based Associated Banc-Corp,but revised the outlook to negative from stable.

First-quartercredit costs for regional banks were higher than forecast, driven by energy, accordingto Sterne Agee CRT analyst Peter Winter. Excluding energy, he said credit trendswere "fairly benign." In a recent report on the Federal Reserve's Aprilsenior loan officer opinion survey,Winter wrote that he did not find it surprising that banks expect delinquenciesand energy charge-offs to increase this year. But he was surprised that "banksindicated a spillover from the energy sector onto the credit quality of loans madeto businesses and households in energy dependent states."

Meanwhile,the margin trend was mixed during the first quarter. For the 27 banks included inthis analysis, the median NIM for the quarter was 3.22%, compared to 3.23% in theprevious quarter and 3.21% a year earlier. Year-over-year NIM compression was mostsevere at , PacWest Bancorp and Hancock.

SNL Image

Click here for a template that shows the financial metrics for a selected banking institution.

Click here for an analysis of first-quarter earnings at the four biggest public U.S. banks by total assets. Click here to read about earnings at superregional banks in the U.S.