U.S. Large-Cap & Mid-Cap Banks

Cross Asset Research
12 February 2016
U.S. Large-Cap & Mid-Cap Banks
INDUSTRY UPDATE
Drilling into Energy Exposure
Equity Research: U.S. Large-Cap Banks

Jason M. Goldberg, CFA
1.212.526.8580
The upcoming spring redetermination period for High-Yield exploration & production
(E&P) credits should be an important data point for bank investors. Our HY credit
analysts estimate that E&P borrowing bases could decline by 20-30%. This poses an
interesting dilemma for HY E&Ps do they sit and watch their borrowing capacities
shrink in hopes of maintaining constructive relationships with bank lenders or do they
fully draw down on revolvers at the risk of being pushed into bankruptcy. This report
digs deeper into banks energy lending exposure, examines the potential impact of a
stressed oil price scenario from the perspective of bank equity and bond holders,
assesses the adequacy of banks existing energy reserves (including historical
perspective), and reviews the lateral implications (impacts on CRE, capital markets,
rates, and bank lending) from the continued pressure on oil prices.
Equity Research View: Earnings headwinds, not capital concerns
The steep decline in oil prices negatively impacts the oil & gas extraction industry and
the quality of loans banks make to the area. We expect 1H16 results to be challenged
by the over 25% quarter-to-date decline in oil prices, the March/April redetermination
period, the shift in the Shared National Credit exam to twice a year, E&P companies
hedges rolling off, and banks receiving year-end results from oil field services (OFS)
firms. These factors are likely to drive continued energy reserve builds. However, we
think the higher provisions will be manageable within the context of our coverages
earnings capacity (~$50bn in quarterly PPNR).
jason.goldberg@barclays.com
BCI, US
Equity Research: U.S. Mid-Cap Banks
Matthew J. Keating, CFA
1.212.526.8572
matthew.keating@barclays.com
BCI, US
1.212.526.8580
BCI, US
High Grade Credit Research
Brian Monteleone *
+1 212 412 5184
brian.monteleone@barclays.com
BCI, US
Daniel Lang *
+1 212 526 1424
daniel.lang@barclays.com
BCI, US
Credit Research View: Stress Testing Energy Exposure

The six largest U.S. banks have $80bn of funded and $130bn of unfunded exposure to
the energy sector. The lack of more granular disclosure leaves many investors
concerned about potential downside beyond management guidance. We use the
disclosure available from the banks and supplement it with a study of publicly available
information on bank lines and revolvers to analyze potential losses under two downside
scenarios. If oil is in the $30-35/bbl range for the next three years, we estimate that
these banks would face $17bn of credit losses. After allowing for existing reserves, this
represents just 5% of consensus pre-tax earnings over the next two years, or 1% of
CET1 capital. Under a more severe scenario, in which oil falls to $20/bbl, we believe
significant losses could extend into IG exposure, resulting in more than $60bn of credit
losses. Even in this extreme case, losses represent just 20% of consensus pre-tax
earnings, or 4% of CET1 capital. Thus, although losses could be worse than
management forecasts, we believe even in an extreme scenario they would be
manageable for credit investors.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 32.
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 32.
FOR IMPORTANT EQUITY RESEARCH DISCLOSURES, PLEASE SEE PAGE 34.
*This author is a member of the Fixed Income,

Currencies and Commodities Research department
and is not an equity research analyst.
Barclays | U.S. Large-Cap & Mid-Cap Banks
EQUITY RESEARCH
Oil Price Pressure Persists
1.212.526.8580
BCI, US
1.212.526.8572
BCI, US
Results for our banking coverage were generally in-line with expectations in 4Q15, with
solid loan growth, modest net interest margin expansion, higher fee income, improved
efficiency ratios, lower non-performing assets, net charge-offs that outperformed historical
seasonal increases, and continued share repurchase. Still, against this backdrop, most
banks only met consensus EPS expectations, as loan loss provisions rose. While an increase
was expected, and provisions remain below historical levels, the magnitude of the growth
was greater than anticipated. The main culprit was an increase in energy and energyrelated loan loss reserves amid growth in criticized and classified assets to the sector.
Concerns that higher-than-expected energy-related loan loss provisions will persist coupled
with the view that forecasts for GDP growth, capital market-related revenues, higher U.S.
short-term interest rates and stabilizing oil prices are all overly optimistic, have sent the BKX
index down 23% since the start of the year (significantly lagging the S&P 500s 11%
decline).
The steep decline in oil prices has had a significant negative impact on the oil and gas
extraction industry (exploration and production companies, drilling companies, and service
companies) and the quality of oil and gas production portfolios across our Large-Cap and
Mid-Cap Bank coverage. The drop in oil prices has impaired some energy companies ability
to pay interest and principal, and has led to some defaults. In addition, companies have
incurred significant debt to fund drilling programs, and their capital structures can become
unsustainable in the face of lower oil prices. Although many companies have hedged
against price declines, this revenue is non-recurring and will run-off, thus potentially
affecting future operating cash flows and long-term loan serviceability. As a result,
companies are preserving liquidity by deferring development drilling, cutting general and
administrative expenses through layoffs to pay down reserve-based lines and increase
borrowing availability. Banks have shown flexibility in working with borrowers by relaxing
leverage covenants and allowing customers time to curtail borrowing base over-advances.
We believe bank regulators have historically been supportive of these actions, though more
recently could be pressuring banks to use more conservative price decks.
Nevertheless, in 2H15, we witnessed a significant increase in criticized and classified
energy/energy-related loans, while nonperforming loans increased at a modest clip (several
noted a portion of NPAs were nonaccruing loans that were current as to principal and
interest) and net charge-offs were slight. The increase in classified energy-related credits
primarily reflected deterioration in the financial condition of oilfield services companies and
exploration and production (E&P) companies, which appear to be the higher risk segments
for the banks. This caused banks to build energy loan loss reserves particularly in 2H15.
Looking out, we expect results in 1H16 to be further challenged by the over 25% quarterto-date decline in oil prices, the March/April redetermination period, the shift in the Shared
National Credit (SNC) exam to twice a year (we believe the new review period began Feb 1),
and as banks see year-end results from the oilfield services companies.
The lower oil prices go and the longer they stay there, the greater the pressure on bank
results. Energy loan balances declined in 4Q15 driven by pay-downs tied to capital markets
and private equity activity, combined with less drilling activity. Further energy loan balance
attrition is likely. Still, most banks view their energy exposures as manageable and look for
their energy-related reserve builds to moderate post 1Q16, assuming oil prices stabilize.
Given its relatively modest contribution to most banks overall loan portfolio, we view our
covered banks energy exposure as an earnings headwind as opposed to a capital concern.
12 February 2016

All else equal, we expect our bank coverage to remain profitable throughout a prolonged
low oil price environment.
The direct exposure of large banks to oil and gas loans is fairly modest, but higher
provisions do weigh on results, particularly since the past several years benefited from loan
loss reserve releases. For some of the more regional players, lending exposure to E&P and
services companies is higher. Among the regional banks we cover, CFR (15% of total loans),
CMA (7.5%), TCBI (7%), ASBC (4%), and RF (3%) rank the highest in terms of energy loans
as a percent of total loans, while E&P and OFS loans as percent of TCE places CFR (74%),
TCBI (69%), ASB (41%), and CMA (37%) on top. We are also monitoring several lateral
implications, both positive and negative, from reduced oil prices. Regional economies like
Texas, North Dakota, Pennsylvania, Louisiana, Colorado, Wyoming, and Oklahoma could be
adversely impacted (CFR and TCBI are most exposed here), while reduced oil prices appear
to be having an impact on the path of interest rates and the capital markets activities. In
addition, commercial real estate is another area that bears watching. Still, we estimate
lower oil prices can save the average household ~$1,000 per year relative to a couple of
years back, allowing it to better manage its debt.
Direct Energy Lending Detailed

As shown in Figure 2, energy loans represent around 2% of loans at our median covered
bank (note, the table includes a few banks outside our coverage). We estimate roughly
40% of this exposure is E&P and 20% is oilfield services. Almost 30% of energy credits
were criticized at year-end, up from virtually nothing six quarters ago. The median energy
reserve is 5% of energy loans, a level we expect to increase further in 1Q16. Unfunded
commitments are almost equal to funded energy commitments, though banks have
safeguards in place. Among the regional banks we cover, CFR (15% of total loans), CMA
(7.5%), TCBI (7%), ASBC (4%), and RF (3%) rank the highest in terms of energy loans as a
percent of total loans. Looking at E&P loans and oilfield services loans as percent of tangible
common equity (TCE), places CFR (74%), TCBI (69%), ASB (41%), CMA (37%), ZION
(28%), and RF (18%) at over 10%. Still, to keep this in perspective, if 25% of our coverages
E&P and oilfield services exposure were to be written off, it would amount to less than a
35bp increase in NCOs and equate to a 2% hit to TCE. However, for some individual banks,
this impact is much more meaningful. So while not a systemic risk, it is a material concern
for some players.
FIGURE 1
Energy Exposure Rankings
20%
100%
80%
15%
60%
10%
40%
5%
20%
0%
0%
Energy Loans / Total Loans
E&P + Oil Field Services / TCE (right axis)
1
Not rated. 2 Loan mix estimated.
Source: Barclays Research, Company reports, and SNL Financial LC
12 February 2016

Nevertheless, we view our covered banks energy exposures as an earnings headwind as
opposed to a capital concern. All else equal, we expect our bank coverage to remain
profitable throughout a prolonged low oil price environment. Of note, not all energy loans
are created equal. When reviewing energy loan concentrations and related energy loss
reserves, we consider the specifics of the energy exposure as potentially more important
than the absolute level, with loans to oilfield services companies and second lien E&P loans
posing the greatest near-term risk.
FIGURE 2
Energy Loans Detailed (as reported)
Energy Loans by Type ($bn)
Loan Mix by Rating, Status
Energy Reserve
Energy
Loans
($bn)
$0.8
% of
Total
Loans
4.1%
$1.6
$21.3
2.4%
$0.4
$0.0
$1.4
1.0%
$0.2
$0.1
$3.1
19.5%
$5.6
$4.5
$20.5
3.3%
$0.1
$0.2
$1.8
15.3%
$0.6
$3.7
7.5%
$0.5
$3.1
1.3%
$0.1
1.5%
$1.7
1.8%
GS
$1.8
1.9%
HBAN
$0.3
0.6%
$1.6
10.1%
$0.2
5.1%
$8
$0.7
4.8%
$27
$14.5
1.7%
$42.1
34%
$725
5.0%
$1.2
2.0%
$3.0
40%
$72
$0.5
8.6%
$5.0
4.6%
$0.4
4.2%
$2.6
1.3%
$3.2
4.0%
$3.0
$1.2
$3.2
1.2%
$17.4
1.9%
E&P
ASB
$0.8
BAC
$4.9
BBT
$0.9
BOKF1
$2.5
$6.2
CFR
$1.2
OFS
Mid- Refining
stream & Mrktng
Vertical
Integ.
Other
Energy
$3.4
$5.6
$5.8
$0.3
$4.2
$0.3
CMA
$2.1
$0.5
COF
$1.6
$1.0
FIBK
$0.1
$0.0
FITB
$0.8
$0.3
HBHC1
$0.6
$0.9
IBTX1
$0.2
$0.0
IBKC1
$0.3
$0.3
$0.5
$0.3
$0.1
$0.2
$0.1
$0.1
JPM
KEY
$0.6
$0.1
$0.4
LTXB1
$0.5
$0.0
$0.1
$0.2
$0.2
$0.1
MS
PB1
PNC
$0.7
$0.9
$1.0
RF
$1.0
$1.0
$0.4
STI
$0.7
$0.5
TCBI
$0.8
$0.2
USB
$1.6
WFC
$9.6
$4.4
$3.5
ZION
$0.8
$0.8
$0.6
Total/Median
$0.5
$0.2
$0.1
$0.2
$0.0
68%
$43.8
49%
$5.6
55%
35%
$58.0
80%
$6.3
59%
$0.1
11%
$10.6
76%
60%
$0.8
Dollars Percent
in mn of Loans
Dollars Percent
in mn of Loans
% Total
Deposits
in TX &
LA
$42
5.6%
$210
28%
$500
2.4%
$4,700
22%
9%
$70
5.0%
$90
2.9%
$326
11%
24%
$800
3.9%
$54
3.1%
$160
9%
100%
$1,431
39%
18%
$27
36%
$150
4.1%
$190
6.1%
$6
7.7%
$81
4.8%
3%
14%
-
17%
38%
$452
29%
64%
4.1%
$68
33%
100%
3.9%
$150
22%
53%
6.0%
$375
31%
$12
2.3%
$51
10%
100%
$10
2.7%
$150
4.7%
2.2%
$137
4.5%
7.2%
$32
2.7%
$2.6
6.5%
$116.8
3.3%
1
Not Rated. Data source for non-rated companies is company reports.
Source: Barclays Research and company reports
Total
% of
% of
Utlization
Exposure Exposure
Loans IG
Rate
IG
($bn)
$1.0
75%
Criticized Loans
$78
$16.0
66%
60%
5.0%
15%
31%
87%
-
$3.4
93%
70%
$42.0
41%
$5.0
68%
$237.7
63%
$900
28%
12%
$199
17%
100%
$173
5.4%
$917
29%
$1,166
6.7%
$6,600
38%
7%
53%
$131
5.0%
$794
30%
22%
45%
$4,704
4.7%
$17,360
28%
23%
JPM's reserve is estimated.
E&P, or upstream, loans are generally made to companies engaged in activities like
searching for potential oil and gas fields, drilling exploratory wells and operating active
wells. In the high-yield segment, these loans are collateralized by the value of the
borrowers oil and gas reserves. This reserve is typically valued by estimating reserves in the
ground that can be extracted profitably and taking a haircut to oil price futures in
determining the borrowing base. This borrowing base is subject to a base redetermination,
typically every six months, based on a variety of factors including updated pricing (reflecting
market and competitive conditions), energy reserve levels and the impact of hedging. This
process typically occurs in March/April and September/October, though can occur more
frequently. Typically, when borrowing bases are reduced it comes from the unfunded
portion of the commitment, given that upstream borrowers typically do not draw the
maximum available funding on their lines. In addition, E&P borrowers sometimes hedge
their reserves. Still, these hedges do roll-off over time and typically last no more than one or
two years.
12 February 2016

The Midstream sector is generally involved in the transportation, storage and marketing of
crude and/or refined oil and gas products. Loans in this segment are made to companies
that gather, transport, treat and blend oil and natural gas. Midstream loans are secured by
pipes, tanks, trucks, rail cars, various water-based vessels, and natural gas treatment plants.
In the current backdrop, there is little stress in this segment given we have yet to see
significant numbers of producing wells being shut. Downstream loans are to refining
companies that turn oil into value-added products for commercial sale. Refiners make
money when the demand for fuel and value-added petroleum products is high and
accordingly are not upset when crude prices trend lower.
Oilfield services companies work across all phases of production. They provide services like
engineering, maintenance, geological surveying, etc. These products and services are
primarily to the E&P segment. As such, when oil prices are under pressure and there is less
demand from E&P companies, this segment comes under pressure. Typically given this
segments exposure to oil prices, banks have more strict leverage requirements. Still, cash
flows can come under significant pressure.
In addition to oil and gas loans, we are also monitoring loans in other lines of business to
companies that have a sizable portion of their revenue related to oil and gas or could be
otherwise disproportionately negatively impacted by prolonged low oil and gas prices.
Metals & Mining is a sector that is getting increased attention, though we believe banks
exposures here are roughly half of their energy exposures.
12 February 2016
CREDIT RESEARCH
Stress testing lower-for-longer oil prices
High Grade Credit Research
Brian Monteleone *
+1 212 412 5184
brian.monteleone@barclays.com
BCI, US
Daniel Lang *
+1 212 526 1424
daniel.lang@barclays.com
BCI, US
The six largest US banks have $80bn of credit exposure and $130bn of lending
commitments to the energy sector 1. Bank management teams have attempted to provide
comfort to investors by highlighting that their expected losses from energy-related credits
are low relative to exposure, earnings and capital. However, the different approaches taken
by different banks in disclosing this analysis and a lack of granularity that does not allow
investors to verify the results themselves has left many questioning whether things could be
worse than expected. We highlight energy exposure stress test commentary provided
during fourth quarter earnings calls:
JPMorgan: We said last quarter if oil reached $30 a barrel, and here we are, and stayed
there for call it 18 months, you could expect to see reserve builds of up to $750 million,
and that assessment hasnt fundamentally changed.
* This author is a member of the Fixed
Bank of America: As an example, if we held oil prices at $30 per barrel for nine quarters,
Income, Currencies and Commodities
we estimate our potential losses on the energy portfolio would be roughly $700 million.
Note that this is a charge-off reference and that provisions would likely be a larger
(though unquantified) amount.
Research department and is not an

equity research analyst.
Citigroup: If our view changes to one where we believe that oil would be at $30 a barrel
for a sustained period of time, we would estimate that our full year cost of credit for
2016 would be $1 billion, including both the impact of incremental reserves for our
energy exposure, as well as the assumption that we begin to seeing knock-on effects on
our broader portfolio. The $600 million estimated first half 2016 cost of credit that I
referenced during the call was based on this scenario. Further, should our view change
to oil at $25 a barrel for a sustained period of time, then our full-year estimated impact
would roughly double.
Wells Fargo: We've sensitized it such that we're sitting here at the $30 area a year from
now and believe that our allowance accurately or appropriately reflects the loss content
that we may have. This comment relates to managements view that existing reserves
of $1.2bn would be sufficient to absorb charge-offs over the stress period, but similar to
Bank of America it does not provide guidance on incremental reserving.
Despite guidance from management teams that losses will be manageable, bank analysts
are currently focused on the potential risk in a downside scenario. There are several key
factors to consider in attempting to quantify the downside risk, namely the composition of
banks energy portfolios, roll rates on currently undrawn lending commitments, the
probability of default and loss given default (with the last three highly correlated to the price
of oil). Therefore, we have run our own stress test of banks exposure to energy credits.
Determining oil price scenarios for stress test

We developed two oil price scenarios to test downside risk from banks energy exposure: a
stressed scenario, in which oil stays at $30-35 for 2-3 years; and a severely stressed scenario,
in which oil drops to $20 and remains there for 2-3 years. Note that both scenarios are more
bearish than our commodity research teams expectations and forward market pricing.
Our commodity research team believes that the oil market will return to balance in 2017
with prices in the $60 range (see The Blue Drum: Uncomfortably numb). This view is
predicated on continued slow (but positive) global growth and a reduction in global
production to bring the oil market into balance. Our energy credit research colleagues
1
12 February 2016
JPM and BAC include derivative counterparty exposure

estimated that if oil prices remain between $20 and $40, this would lead to a reduction of
738k-1,160k barrels per day of production from US E&Ps, which should help to close the
supply-demand gap (see: E&P Leverage Spikes to Unsustainable Levels at $30/bbl WTI;
Production Response Seems Inevitable).
We view this as a sanguine scenario for bank investors. However, oil futures are pricing WTI
at a more bearish $39/bbl at year-end 2016, $43/bbl at year-end 2017 and $45/bbl at yearend 2018 (Figure 3). We understand there are certain weaknesses to using the forward
curve as a predictor of future spot rates. For example, it can be skewed by the relative needs
of different parties needing to hedge in the forward market, while storage costs inflate the
futures curve, all of which may result in an overstatement of expected future spot pricing.
That said, it is the lone market-based indicator of future pricing, and we highlight that it is
pricing a more bearish scenario than our analysts.
FIGURE 3
Forward WTI curve
$/bbl
50
45
40
35
30
25
20
Mar-16
Jul-16
Nov-16
Mar-17
Jul-17
Nov-17
Mar-18
Jul-18
Nov-18
Source: Bloomberg, Barclays Research
From a sensitivity perspective, stressed losses would not materially decline, in our view,
unless oil was above $40/bbl. The second scenario is far more bearish. With oil at $20/bbl
for an extended period, significant portions of the HY and IG E&P and oil field services
segments of the energy sector would be at risk of default. A materially lower oil assumption
would not have materially increased our stressed losses.
Assessing HY risk: Redetermination dilemma to affect RBL draws and defaults

In evaluating the risk to banks from HY energy lending, we considered both their funded
and unfunded exposure. Banks disclosure on energy exposure remains lacking in terms of
granularity. We have therefore examined publicly available information on the composition
of lending commitments in an attempt to fill some gaps and provide a more robust analysis
of potential losses. We used Bloomberg data on the classification of $100bn of undrawn
loan commitments to HY energy companies to better understand the potential composition
of banks portfolios. We estimate that 55% of the HY loan markets unfunded commitments
is to E&P, 25% to midstream, 15% to oil field services and 5% to integrated.
The upcoming spring redetermination period for HY E&P credits will be an important data
point for bank investors in evaluating how much of this unfunded commitment is drawn.
Our HY credit analysts estimate that E&P borrowing bases declined by 7% in the fall 2015
redetermination period and are likely to fall at least 20-30% in spring 2016. However, with
oil now trading at $27/bbl, we believe the borrowing base cuts could be even more severe.
This poses an interesting dilemma for HY E&Ps either do nothing and watch their
borrowing capacity severely decrease in hopes of maintaining a constructive relationship
12 February 2016

with their bank lenders or fully draw down on their revolvers in return for liquidity and
improving their negotiating leverage with the banks (at the risk of being pushed into
bankruptcy when their borrowing base is cut below the amount drawn).
We have two recent examples of stressed E&Ps taking the latter approach. Over the past
several weeks SandRidge drew down $489mn on its $500mn facility, while Linn Energy
drew down the remaining $919mn on its $3.6bn credit facility, which is now fully drawn,
while hiring restructuring advisors.
We expect the struggling producers to follow SandRidge and Linn. This implies that more
defaults may be coming sooner than expected. To the extent that the upcoming
redetermination of borrowing base reduces the E&Ps borrowing capacity below the amount
outstanding, borrowers will have to repay excess borrowings or face a decision on
restructuring or default. The lowest cost producers may not feel the same near-term
pressure to draw yet, given their ability to better absorb low oil prices. However, income
from hedges will account for 45% of HY E&P credits EBITDA in 2016 and will materially
diminish in 2017. If oil prices do not recover, even these healthier credits may ultimately
choose to draw on their borrowing capacity. To be conservative, we assume that 100% of
HY E&P and oil field services commitments are ultimately drawn.
Our HY energy analysts have estimated that at $37/bbl, 15-20% of HY energy companies
will default in 2016, including 25% of HY E&Ps and 10% of HY oil services. If oil falls below
$30/bbl, this would accelerate HY E&P defaults to over 50% in the next two years. At
$20/bbl for an extended period of time, the problem will become more severe. We highlight
our key assumptions in Figure 4.
Assessing the risk within investment grade revolvers

Bank disclosure regarding IG energy exposure is also lacking in terms of granularity. We
undertook a similar examination of publicly available information to fill some gaps and to
provide a more robust analysis of potential losses. We find approximately $300bn of
investment grade revolver capacity has been provided by banks (through FactSet), of which
41% is to midstream companies, 21% E&P, 21% integrated, 11% oil field services and 6%
refining. We use this breakdown to estimate the composition of banks unfunded exposure
to IG counterparties.
We further analyzed the constituents of the IG revolver universe and estimate that in a
stressed scenario where oil remains at $30-35 per barrel for the next three years, that 60%
of E&P, 40% of midstream and 15% of oil field services credits would be at risk of drawing
on their revolvers and that 25%, 10% and 15%, respectively, would be at risk of default. In a
scenario in which the price of oil falls to $20 and remains there for three years, we estimate
that the share of this universe at risk of default jumps to 75% for E&Ps and 80% for oil field
services, with limited effect on midstream.
While banks IG exposure is largely unsecured, we believe stressed borrowers that draw on
their revolvers will eventually be forced to provide collateral to banks. In a stressed
environment, we would expect energy companies to breach covenants before reaching
default. This provides an opportunity and leverage for the banks to seek and obtain
collateral, effectively priming bonds and benefiting recovery on bank lines. We provide our
key stress test assumptions in Figure 4.
12 February 2016
FIGURE 4
Key stress test assumptions
Stressed
Severely stressed
IG
HY
IG
HY
E&P
60%
100%
100%
100%
Midstream
40%
40%
50%
50%
Oil field services
15%
100%
80%
100%
E&P
25%
50%
75%
90%
Midstream
10%
10%
10%
30%
Oil field services
15%
50%
80%
90%
E&P
30%
30%
50%
50%
Midstream
10%
10%
20%
20%
Oil field services
70%
70%
80%
80%
Draw rate:
Default rate:
LGD:
Source: Barclays Research
Stress scenario
For our stress scenario, we assume oil remains at $30-35/bbl for the next three years. We
note that granular disclosure regarding energy exposure is limited and sporadic and that we
had to make many assumptions about the composition of the energy portfolios at most
banks. To do this, we used company disclosures where available and applied a market
portfolio where granular information was not available. Our key findings include:
We estimate that the six largest US banks would face over $17bn of credit losses from
the energy sector over the next several years (Figure 5).
With over $3bn reserved for energy exposure, more than 20% of provisions have been
taken for this scenario at the moneycenter banks. This shortfall represents 5% of
aggregate consensus pre-tax profit (range 3-7%) over the next two years for the group
and 1% of current CET1 capital (0.6-2.1%).
Wells Fargo would be the most affected bank in this scenario, with estimated losses of
$5.9bn. Goldman Sachs would be least affected with estimated losses of $0.8bn.
12 February 2016

FIGURE 5
Estimated credit losses for energy exposure under stress scenario
BAC
WFC
JPM
GS
MS
Funded Energy Exposure
21.3
20.5
17.4
13.8
1.8
4.8
Unfunded Energy Exposure
22.5
37.6
24.6
28.3
8.8
11.2
Total Energy Exposure
43.8
58.1
42.0
42.1
10.6
16.0
1.8
1.4
3.0
1.6
0.2
0.5
Total Unfunded
1.2
2.0
2.9
1.4
0.6
0.5
Total
3.1
3.5
5.9
3.0
0.8
1.1
Reported/estimate reserves
0.5
0.8
1.2
0.7
0.1
0.2
Stressed incremental losses
2.6
2.7
4.7
2.3
0.7
0.8
Estimated stressed losses

Total Funded
After-tax charge/CET1 capital
1.1%
1.2%
2.1%
0.9%
0.6%
1.0%
After-tax charge/RWAs
0.11%
0.14%
0.23%
0.10%
0.08%
0.14%
55
49
71
72
25
19
4.6%
5.6%
6.6%
3.2%
2.7%
4.4%
Consensus 24 month pre-tax profit

Incremental loss/consensus PT profit
Source: Company reports, Barclays Research
Severe stress scenario

For our severe stress scenario, we assume oil falls to $20/bbl and remains there for the next
three years. With oil trading at $27/bbl, it seems plausible that the market could get to $20.
However, we believe oil prices remaining at $20/bbl for a period of several years is a severe
scenario because pricing should be a catalyst for production cuts from higher cost
producers that should allow the market to return to balance at higher prices. Our key
findings under our severe stress scenario:
We estimate that the six largest US banks would face more than $60bn of credit losses
related to the energy sector over the next several years. Incremental stressed losses
from currently investment grade rated borrowers are the biggest drivers of loss inflation
from our stress scenario.
Significant additional reserves would need to be built in this case, though this should be
absorbed by pre-tax earnings and not create capital concerns. $60bn of credit losses
would amount to roughly 20% of the $300bn consensus pre-tax earnings expected over
the next two years from these six banks.
Wells Fargo and Citigroup ($17.4bn and $16.6bn, respectively) would face the largest
losses in this scenario, while Goldman Sachs and Morgan Stanley would face the least
($2.7bn and $3.8bn, respectively). We believe this would be manageable for all the
moneycenter banks.
We do recognize that in such a severe scenario, expectations for global growth, interest
rates and net interest margins, and markets revenues may be lower than what is
currently expected. Still, at 4% of CET1 capital, we believe this severe stress loss would
be manageable even if profitability was significantly more stressed than it is currently
expected to be.
12 February 2016
10

FIGURE 6
Estimated credit losses for energy exposure under severe stress scenario
BAC
WFC
JPM
GS
MS
Funded Exposure
21.3
20.5
17.4
13.8
1.8
4.8
Unfunded Exposure
22.5
37.6
24.6
28.3
8.8
11.2
Total Exposure
43.8
58.1
42.0
42.1
10.6
16.0
4.7
6.1
7.6
4.7
0.6
1.5
Total Unfunded
5.0
10.5
9.8
6.1
2.1
2.3
Total
9.7
16.6
17.4
10.8
2.7
3.8
Reported/estimate reserves
0.5
0.8
1.2
0.6
0.1
0.2
Stressed incremental losses
9.2
15.8
16.2
10.2
2.6
3.6
Estimated stressed losses

Total Funded
After-tax charge/CET1 capital
3.9%
7.0%
7.4%
3.9%
2.5%
4.2%
After-tax charge/RWAs
0.38%
0.84%
0.79%
0.45%
0.29%
0.59%
55
49
71
72
25
19
16.7%
32.3%
22.7%
14.2%
10.6%
18.9%
Consensus 24 month pre-tax profit

Incremental loss/consensus PT profit
Source: Company reports, Barclays Research
12 February 2016
11
EQUITY RESEARCH
Historical Perspective on Bank Energy Losses
1.212.526.8580
BCI, US
1.212.526.8572
BCI, US
The impact that the ~70% decline in oil prices since June 2014 is likely to have on banks
energy-related losses will depend in large measure on how long oil prices remain depressed.
Energy-related classified loans increased significantly following the 2008-09 oil price
declines, but NPLs rose more modestly and net charge-offs were manageable. To illustrate,
BOKFs loss rate on its E&P loans peaked around 45bps in 2009 (its 20-year average is
~5bp) and ZION reported less than 1% in peak annual energy losses during this downturn.
To put these loan losses in perspective, residential real estate charge-off rates for the 100
largest U.S. banks peaked at 3.08% and charge-off rates on C&I loans overall reached 2.66%
in 2009. However, the 71% decline in oil prices from June 2008 to February 2009 proved
relatively short lived, with oil prices rebounding 90% from their February 2009 low by the
end of 2009. Accordingly, the oil price decline of the last 18 months may be more akin to
the 62% drop in oil prices from November 1985 through July 1986 since oil prices
subsequently recovered by only 33% off their July 1986 low in the next two years.
FIGURE 7
WTI Oil Price, 2014 YTD 2016
$/barrel
$120
$100
$80
$60
$40
$20
$0
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Source: Barclays Research and Thomson Reuters
FIGURE 8
WTI Oil Price, 2007 2010
FIGURE 9
WTI Oil Price, 1982 1990
$/barrel
$/barrel
$160
$40
$140
$35
$120
$30
$100
$25
$80
$20
$60
$15
$40
$10
$20
$5
$0
Jan-07
Jan-08
Jan-09
Jan-10
Source: Barclays Research, Haver Analytics, and CME Group
12 February 2016
$0
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Source: Barclays Research, Haver Analytics, and CME Group
12

Analyzing CFRs energy loan portfolio (9% of its total loans in 1984) and related losses
during the mid-1980s offers an interesting perspective on how high energy-related losses
could go during a prolonged oil price downturn. CFRs 1988 Annual Report indicated that
its cumulative energy NCOs approached 11% from 1985-1988. However, it booked its
most energy-related NCOs in 1985, which was before oil prices really started to decline. We
would also point out that Texas-based banks faced the dual impact of lower energy prices
and the collapse of the S&L industry in the 1980s, which likely exacerbated losses. Looking
only at the years 1986-1988, CFRs cumulative energy-related NCOs totaled only $2mn (less
than a 2% cumulative loss). The median bank in our analysis maintained an energy reserve
of close to 5% of energy loans at 4Q15.
FIGURE 11
CFRs Energy Loss Experience, 1985 1988, $ mn
FIGURE 10
CFRs Energy Loan Portfolio, 1984 1988
$mn
Average
Energy
Energy NCO
Energy Loans
NCOs
Ratio
1985
$138
$15
11%
1986
$121
$5
4%
1987
$108
$2
2%
1988
$89
($5)
-6%
$16
11%
% loans
$160
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
$140
$120
$100
$80
$60
$40
$20
$0
1984
1985
1986
1987
Energy loans
Cumulative
1988
% of total
Source: Barclays Research and Cullen/Frost filings
Source: Barclays Research and Cullen/Frost filings
Banks usually apply concentration limits to their energy-related portfolios to limit risk. The
bulk of banks energy exposure is usually to senior loans and the majority is secured by
reserves, equipment, real estate, and other collateral, or a combination of collateral types.
Lending arrangements that are not secured are generally to investment grade borrowers. A
great deal of this exposure is Shared National Credits, where another regulatory SNC exam
is currently going on (as it switches to a semi-annual process). Finally, for those concerned
that banks energy exposures might prompt another financial crisis, we note that our LargeCap Banks coverages total energy/energy-related loans outstanding of ~$100bn (exposure
is closer to $200bn) is far smaller than their exposure to housing and construction entering
the Great Recession. In 2007, our Large-Cap Banks coverage had $964bn in mortgages on
their books and another $349bn of H/E and $161bn of C&D (thats $1.5trn in all, plus lots of
off-balance sheet risks and much lower capital levels).
We expect energy-related losses to remain manageable for the industry, but do anticipate
energy-related NCOs picking up in 2016, with associated loan loss provision increases
pressuring earnings for some. According to a February 3 Reuters article, entitled U.S.
regulators expected to classify more energy loans as high risk, bank regulators are likely to
classify more oil and gas loans as high risk when they start the new bank portfolio review
(commenced in early February), due to the fall in crude prices to a 12-year low since their
last review. This action is expected to further cut credit access and escalate defaults for
cash-starved energy companies and prompt banks to further increase their reserves for
energy losses. According to Thomson Reuters LPC data, the average bids on U.S. oil and
gas loans fell to 76.6 on February 2 from 79.1 at year end and a recent peak of 92.8 in May
2015. Finally, many E&P companies have hedged against price declines, but this revenue is
non-recurring and will run-off as hedges mature, potentially affecting future operating cash
12 February 2016
13

flows and long-term loan serviceability. Of the 27 banks in our analysis, only two (LTXB and
TCBI) emphasized a significant benefit from hedging among their E&P borrowers on their
4Q15 conference calls.
Banks Near-term Loss Expectations

On the 4Q15 earnings calls and at recent conferences, several banks offered their near-term
outlooks should oil prices remain pressured. If their assumptions prove accurate, the
expected losses appear very manageable given the groups current earnings capacity (over
$50bn in quarterly PPNR).
FIGURE 12
Summary of Management Comments on Loss Expectations
4Q15
LOSS EXPECTATIONS
BAC
C
CMA
COF
CFR
FITB
JPM
PNC
RF
STI
TCBI
$700mn NCOs; +$900mn LLP

$1bn cost of credit, if oil ~$30/bbl; will double if oil ~$25/bbl
If oil prices remain @$30/bbl for 1 yr with static ln balances, expect +$75-125mn LLR build
+50mn in add'l LLR build if prices remain at these levels
With oil ~$30/bbl in 2016, no plans to increase reserve
If low oil prices persist thru 2017, will continue to build reserves
Add'l +$750mn in LLR build, if prices remain ~$30/bbl for 18mos
$200mn of not asset-based/IG loans pose the greatest risk
Add'l NCOs of $50-$75mn in 2016 if prices stay, and add'l $50mn if prices fall to ~$20/bbl
NCOs/NPLs in E&P/OFS portf will be elevated over the next couple of years
2016 provision est. of ~$65mn is based on oil @ $35/bbl
Reserve levels assume oil prices stay at depressed levels for the near future
if prices decline may see add'l stress in energy portf; will not have material impact on credit perf
Expects higher losses in 2016 if low oil prices persist
$75-$100mn in losses with oil at ~$30/bbl
USB
WFC
ZION
Source: Company and Barclays Research
ASB: ASB is a bit more negative than most on the near-term prospects for its energy lending
business (4% of its total loans). If oil prices remain at recent levels going into the Spring
borrowing base redetermination, it sees more restructurings and bankruptcies across the
energy industry. More specifically, it expects a lot of pain for the oil patch if WTI drops
below $30 a barrel for an extended period. In this scenario, ASB sees further downward risk
migration and additional reserve builds. Its energy reserve totaled $42mn (5.6% of its
energy loans) at 4Q15.
BAC: If oil prices remain at $30 per barrel for nine quarters, BAC estimates potential losses
in its energy portfolio at around $700mn. Based on its $21.3bn energy loan portfolio, this
translates into cumulative energy-related losses of around 3.3%. BACs energy reserve
totaled 2.4% of its energy loans at 4Q15.
BBT: Since BBTs energy business is comparatively small, it does not anticipate energy
becoming a major issue. It monitors its oil and gas exposure by running stress/sensitivity
analysis (its stress scenario sets crude oil price at $20 or below). Although BBT does not
anticipate major problems, if oil goes to extreme lows it thinks some near-term challenges
are possible.
BOKF (Not Rated): BOKFs stressed oil scenario assumes prices of $25 a barrel in 2016, $28
in 2017, $30 in 2018, $35 in 2019, and $42 in 2020 and thereafter. The inherent loss
content in this scenario is factored into its most recent guidance calling for $60-$80mn in
provisions ($33.5mn in 2015) in 2016.
12 February 2016
14

C: C expects its ICG units 1H16 credit costs to be roughly $600mn ($1bn for full-year),
which assumes oil prices stay around $30 a barrel for a sustained period (i.e. one year).
However, if oil prices drop to $25 a barrel and then stay there for a sustained period of time,
it sees its 1H16 credit cost forecast potentially doubling to $1.2bn. Cs energy reserve
totaled $800mn or 3.9% of its energy loans at 4Q15.
CFR: CFRs $22mn energy reserve build in 4Q15 stemmed from its oil sensitivity analysis at
$28.13 a barrel in 2016 and its assumption that oil prices stay below $40 a barrel through
2020. If oil prices remain at $30 a barrel in 2016, it does not anticipate a large increase in its
energy reserve ($54mn or 3% of its energy loans at 4Q15).
CMA: CMA expects its energy charge-offs to be manageable, but sees further negative
credit migration in the quarters ahead. If oil prices remain at $30 for all of 2016, it estimates
the impact on its reserves ($150mn or 4%+ of energy loans at 4Q15) in the $75-$125mn
area.
COF: With oil prices down from year-end 2015 levels, COF anticipates increases in its
criticized and nonperforming loans, additional reserve builds (~$50mn from 4Q15 quarterend levels all else equal) and possible increased charge-offs in 2016.
FIBK: FIBK believes that recent oil prices are at levels that put more stress on borrowers and
it is beginning to be much more proactive in terms of addressing potential problem loans.
However, given its limited exposure and general stable credit trends throughout the
downturn in the oil and gas, it feels comfortable its risk is well managed. It does not expect
any continued weaknesses in oil prices to impede its ability to generate profitable growth in
2016.
FITB: FITB thinks it is appropriately reserved based on current forward oil prices. However,
if low oil prices persist through 2017, it expects continued reserve build.
HBHC (Not Rated): HBHCs estimates that its charge-offs from its energy-related credits will
approximate $50-$75mn over the duration of the cycle.
IBKC (Not Rated): If oil prices go down to low/mid $20s and stay there for more than a
year, IBKC thinks it will likely have some additional provisioning. However, it does not see a
scenario where its provisioning is not manageable.
JPM: Given the decline in oil prices since the start of this year, JPM anticipates continuing to
build its energy reserves (+$124mn in 4Q15) in 2016. However, it emphasized that prices
would need to remain at recent levels for an extended period for reserve builds to be
significant. If oil prices remained at $30 a barrel for 18 months, JPM envisions another
$750mn of reserve build.
RF: Should energy prices stay at recent levels, RF expects charge-offs in the $50mn-$75mn
range in 2016, which is down from its previous guidance of $50mn-$100mn due to the
energy loans it charged-off in 4Q15. However, if oil prices decline into the $20s, RF sees
$50mn in incremental charge-offs as possible. Its energy reserve was $150mn (4.7% of
energy loans) at 4Q15.
STI: STI expects losses in its E&P and oilfield services portfolios to be elevated over the next
couple of years, which will likely result in its overall C&I loss rate rising from recent low
levels.
TCBI: TCBI thinks its energy portfolio is in good shape and that it is appropriately reserved.
Its updated base case oil and gas price deck assumes $42.50 per barrel of oil and $2.30 per
mcf for gas. Its sensitivity case assumes $37.50 per barrel of oil and $2.00 per mcf of gas.
Its 2016 provision guidance (~$65mn) is based on $35 oil throughout 2016.
12 February 2016
15

USB: USB considers its 5.4% energy reserve reasonable, with oil prices around $30 a barrel.
However, based on the uncertain outlook for commodity prices in the near-term and the
potential for further energy price declines, it said it could see additional stress within its
energy and metals-related loan portfolios in 2016.
WFC: Since it takes time for losses to emerge, WFC expects to experience higher oil and gas
losses ($118mn in 4Q15 and $90mn in 3Q15) in 2016 based on recent price levels.
However, if oil stays at $30 for the next year, it thinks its $1.2bn (7.1% of energy loans) oil
and gas reserve is sufficient.
ZION: ZIONs consolidated 2016 NCO expectation calls for NCOs of only 0.30-0.35% of total
loans, with most of this coming from its energy portfolio. It increased its energy loan loss
outlook for the nine quarters ending 4Q16 to $116-$141mn from $75-$125mn (based on
the $41mn in oil and gas NCOs it has incurred to-date and its expectation for $75-$100mn
in NCOs over the next four quarters). Its loss assumptions are based on oil prices remaining
around $30 a barrel. ZIONs energy reserve totaled $131mn (5% of its energy loans) at
4Q15.
Assessing Energy Reserves

Disclosures from 4Q15 results season allow for more meaningful comparisons of energy
exposure and reserves, as banks provided more details on their energy lending portfolios
composition (E&P, oilfield services, midstream, and other), their energy reserve levels, and
their criticized energy loan percentages (a criticized asset is rated special mention,
substandard, doubtful, or loss as defined by the agencies' uniform loan classification
standards). Analyzing these disclosures reveals a positive correlation between banks energy
reserves and criticized energy loan percentages. Based on this relationship, the banks that
appear to maintain the healthiest energy reserves include: FIBK, WFC, KEY, and ASB.
Conversely, the banks where energy reserves look comparatively low based on disclosed
criticized energy loans include: CMA, IBTX, BAC, and TCBI.
FIGURE 13
Criticized Energy Loans vs. Energy Reserve
Energy reserve %
9%
8%
FIBK
7%
WFC
6%
KEY
ASB
USB
ZION
HBHC
RF
5%
4%
IBTX
IBKC
CFR
BOKF
3%
TCBI
BAC
LTXB
2%
CMA
1%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Criticized energy loans %

Source: Barclays Research and Company reports
12 February 2016
16

Our analysis shows a negative correlation between banks energy loan concentrations
(energy loans as a percentage of total loans) and their energy reserves. Banks with
comparatively large energy concentrations (BOKF, CFR, LTXB, and TCBI) tend to have
below-average energy reserves. Conversely, the higher energy reserves were found at
banks with comparatively low energy concentrations (FIBK, WFC, COF, and KEY).
FIGURE 14
Energy Loan Concentration vs. Energy Reserve
Energy reserve %
9%
8%
FIBK
7%
WFC
6%
COF
KEY
5%
USB
BBTJPM
FITB
STI
4%
ASB
ZION
HBHC
RF
C
IBTX
IBKC
CMA
CFR
3%
PB
BOKF
TCBI
BAC
LTXB
2%
1%
0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
Energy loan concentration %

The apparent inverse relationship between banks energy loan concentrations and energy
reserves could make sense if banks with more experience in the industry take less risk.
Disclosures from the 4Q15 results season reveal that banks with outsized energy
concentrations tend to also have comparatively low percentages of criticized energy loans.
We attribute this relationship to banks with large energy portfolios having generally been in
this business throughout multiple cycles. We think their experience and longstanding client
relationships may enable them to avoid some of the more risky energy credits, which are
the first to show problems in times of stress. Varying energy reserve levels may also stem
from differences in the mix of energy portfolios, as banks with elevated energy lending
concentrations tend to skew more toward E&P lending as opposed to the more risky oilfield
services area.
12 February 2016
17

FIGURE 15
Energy Loan Concentration vs. Criticized Energy Loans
Criticized energy loans %
45%
40%
CMA
WFC
FIBK
35%
IBTX
KEY
30%
ZION
USB
HBHC
RF
ASB
25%
BAC
IBKC
20%
TCBI
15%
10%
LTXB
BOKF
CFR
5%
0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
Energy loan concentration %
Banks seem to agree that loans to oilfield services companies are more risky than loans to
E&P or midstream firms. HBHCs 4.95% energy reserve at 4Q15 included a 7.1% reserve on
its oilfield services exposure, a 2.2% reserve on its E&P loans, and a 0.7% reserve on its
midstream loans. However, this sentiment does not seem to be universally reflected in
banks reserving methodologies. Our analysis fails to show a strong positive correlation
between oilfield services exposure and energy reserves. In fact, PB, a bank with one of the
highest oilfield services lending exposure (55% of its energy loans), maintained one of the
lowest energy reserves (2.7%) at 4Q15.
FIGURE 16
Oilfield Services Energy Loan Concentration vs. Energy Reserve
Energy reserve %
9%
8%
FIBK
7%
WFC
6%
COF
KEY
USB
5%
ZION
RF
FITB
STI
IBTX
CMA
C
4%
3%
BOKF
LTXB
2%
HBHC
IBKC
CFR
TCBI
BAC
PB
1%
0%
0%
10%
20%
30%
40%
50%
60%
70%
Oil field services energy concentration %
Note: Includes estimates. Source: Barclays Research and company reports
12 February 2016
18
Lateral Implications
Regional Economies
We are closely watching regional and secondary impacts, particularly in the states: Texas,
North Dakota, Pennsylvania, Louisiana, Colorado, Wyoming, and Oklahoma. While these
economies are very diverse, a meaningful portion of growth coming out of the financial
crisis was driven by the energy sector. As the energy sector scales back, we will be closely
watching unemployment trends and real estate valuations in these geographies. Looking at
our coverage CFR and TCBI are concentrated in Texas, while PNC has 35% of its deposits in
Pennsylvania and First Interstate has 35% in Wyoming. On the international front, markets
like Russia and Venezuela have come under stress. While not a meaningful factor for most
of our coverage, banks exposed to countries whose sovereign debt is supported by oil
production may be at increased risk. Of our coverage, C maintains the most exposure to
international and emerging markets.
FIGURE 17
Percent of Parent Deposits by State, 2015 Pro forma (%)
North Dakota
Oklahoma
Pennsylvania
Texas
Wyoming
CFR
Colorado Louisiana
-
100.0
100.0
IBTX1
100.0
100.0
LTXB 1
100.0
100.0
PB 1
13.2
86.8
100.0
TCBI
100.0
100.0
BOKF1
6.2
55.1
23.6
84.8
HBHC1
60.0
4.4
64.4
IBKC1
41.3
11.5
52.8
PNC
34.9
34.9
FIBK
34.8
34.8
ZION
5.6
21.9
0.0
27.5
CMA
17.9
17.9
JPM
1.0
1.7
0.4
0.0
13.8
16.8
COF
8.3
5.9
14.2
BBT
10.0
3.1
13.2
WFC
2.7
0.2
3.2
6.5
0.2
12.9
7.3
4.6
11.9
BAC
0.2
0.4
1.0
9.1
10.7
KEY
3.4
5.7
9.1
USB
4.2
0.6
0.0
0.2
4.9
HBAN
4.7
4.7
ASB
FITB
GS
MS
STI
RF
Total
1
Not Rated. Data source for non-rated companies is from SNL Financial LC.
Source: Barclays Research and SNL Financial LC
Companies are cancelling new projects, reducing drilling activity, and laying off employees.
This hurts local businesses through lower consumer and business spending and state and
local tax revenues. Credit quality deterioration in these areas has not been an issue, but is a
risk. We note on COFs 4Q15 earnings call it said that looking at geographies with high
energy employment concentration it has seen a slight uptick in credit card delinquencies.
Still, USB said this week it has seen no evidence that job losses in energy-related markets
have adversely impacted its consumer portfolio. We also note that while reduced oil prices
may negatively affect job growth in energy producing states, it does result in consumers
12 February 2016
19

paying lower prices at the pump, adding up to savings of almost $1,000 annually per
household, relative to the middle of 2014, by our estimates.
Real Estate
When assessing the impact on banks from the continued oil price declines, investors are
beginning to look beyond direct energy and energy-related lending exposure and toward
potential contagion risks. Texas is the U.S. state that is the most exposed to energy
weakness. Moreover, within the Lone Star State, Houston is generally considered the
epicenter of the energy industry. The near-term contagion concerns focus on Houstons
commercial real estate (CRE) market and to a lesser degree its residential housing market.
Our covered banks with the most branches and deposits in Houston include: JPM, WFC,
BAC, ZION, CFR, COF, CMA, TCBI, RF, and EWBC.
The Dallas Federal Reserves employment forecast for Texas points to job growth of 1.1% in
2016, which is slightly below the 1.4% growth the state recorded in 2015. Texas grew jobs
by 3.4% in 2014. As long as oil prices average above $30 per barrel in 2016, the Dallas Fed
sees positive job growth in Texas driven by continued strength in sectors such as health
care and leisure and hospitality and in metro areas such as Dallas, Austin and San Antonio.
However, if oil prices average below $30 per barrel for the year, the Dallas Federal Reserve
cautioned that Houston could begin to show net job losses.
Fortunately for banks operating in Texas, economic growth in most of the states major
markets remains vibrant. Houston is the only major city in Texas where the steep decline in
oil prices is adversely impacting economic growth. To illustrate, Dallas posted 4.2% job
growth in 2015, Austin increased employment by 4.0%, and San Antonio grew jobs at a
healthy 3.3% clip. By contrast, employment in Houston rose a modest 0.3% in 2015. At the
end of 2015, the non-seasonally adjusted unemployment rates in Austin (3.1%), San
Antonio (3.5%), and Dallas (3.7%) were all well below the 4.8% national average.
Houstons 4.6% unemployment rate at December 2015 was up from 4.0% as recently as
March 2015.
FIGURE 18
Largest Banks Operating in Houston, Texas by Branches and Deposits, 2015 ($bn)
Rank Institution (HQ state, ticker)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
JPMorgan Chase & Co. (NY, JPM)

Wells Fargo & Company (CA, WFC)
Bank of America Corporation (NC, BAC)
Banco Bilbao Vizcaya Argentaria, SA
Zions Bancorporation (UT, ZION)
Prosperity Bancshares, Inc. (TX, PB)
Cullen/Frost Bankers, Inc. (TX, CFR)
Capital One Financial Corporation (VA, COF)
Comerica Incorporated (TX, CMA)
Woodforest Financial Group, Inc. (TX)
Cadence Bancorp, LLC (TX)
Texas Capital Bancshares, Inc. (TX, TCBI)
Regions Financial Corporation (AL, RF)
Green Bancorp, Inc. (TX, GNBC)
Allegiance Bancshares, Inc. (TX, ABTX)
BOK Financial Corporation (OK, BOKF)
IBERIABANK Corporation (LA, IBKC)
CBFH, Inc. (TX)
Independent Bank Group, Inc. (TX, IBTX)
East West Bancorp, Inc. (CA, EWBC)
Top 20
Total For Institutions In Market
Total
Number of
Deposits in
Branches
Market
226
$84.4
208
$25.2
112
$19.1
77
$13.5
66
$9.9
61
$4.7
30
$4.1
53
$4.0
55
$3.6
106
$3.1
11
$2.5
2
$2.2
28
$2.0
13
$2.0
16
$1.6
13
$1.5
7
$1.4
19
$1.4
11
$1.1
9
$1.1
1,123
1,484
$188.2
$206.4
Total
Deposit
Market
40.9%
12.2%
9.2%
6.5%
4.8%
2.3%
2.0%
1.9%
1.8%
1.5%
1.2%
1.1%
1.0%
1.0%
0.8%
0.8%
0.7%
0.7%
0.6%
0.5%
Percent of
Total
Deposits
7.9%
2.3%
1.6%
21.6%
19.9%
26.9%
17.1%
2.0%
6.3%
77.7%
39.0%
15.5%
2.1%
64.1%
100.0%
7.0%
8.9%
55.5%
28.7%
4.3%
91.2%
Source: Barclays Research and SNL Financial LC
12 February 2016
20
FIGURE 19
Unemployment Rate Texas vs. U.S.
FIGURE 20
Unemployment Rate Major MSAs in Texas
8%
6%
7%
5%
6%
5%
4%
4%
3%
Jan-14
Jul-14
Jan-15
Texas
3%
Jan-14
Jul-15
Jul-14
Houston
U.S.
Source: Barclays Research and Texas Workforce Commission and U.S. BLS; NSA
Jan-15
Dallas
Jul-15
San Antonio
Austin
Source: Barclays Research and Texas Workforce Commission and U.S. BLS; NSA
To keep Houstons employment picture in perspective, we note that its non-seasonally

adjusted unemployment rate (4.6%) at the end of 2015 remained below the 4.8% national
average. The Greater Houston Partnership points out in its February 2016 Economy at a
Glance publication that Houstons unemployment rate peaked at 8.8% during the Great
Recession and hit 12.9% during the oil bust of the 1980s. However, a near-term
employment market recovery is unlikely in the absence of a material recovery in oil prices.
According to Texas Workforce Commission data, The Houston-The Woodlands-Sugar Land
metro area created 23,200 jobs in 2015, which pales in comparison to the 491,500 jobs
added over the previous five years. The Greater Houston Partnership expects the Houston
employment picture to remain challenged, forecasting about 21,900 job additions for the
region in 2016.
FIGURE 21
Metro Houston Job Growth
(000s)
140
118.5
120
104.7
100
89.9
82.9
80
60
49.7
40
23.2
21.9
2015
2016E
20
0
2010
2011
2012
2013
2014
Source: Texas Workforce Commission and Greater Houston Partnership estimate
Despite Houstons efforts to diversify its economy by creating stronger medical, education,
and technology sectors, many argue it remains an oil-and-gas city. Collier International, a
global leader in CRE services, points out that Houston is internationally recognized as the
global energy capital, with virtually every segment of the energy industry represented by
over 5,000 firms in the region. Collier International estimates that the energy sector
12 February 2016
21

accounts for just over 50% of the Houston economy. Accordingly, with job growth slowing
and potentially turning negative depending on oil price fluctuations, there are real concerns
about Houstons commercial and residential real estate markets.
Within the Houston CRE market, the largest near-term concern relates to the office sector.
According to a January 26, 2016, WSJ article titled, Vacant Office Spaces Pile Up in
Houston, at its peak last year, close to one-fifth of all U.S. office space under construction
was located in Houston. Colliers 4Q15 Houston Office report indicated that the Houston
office vacancy rate increased to 15.4% at 4Q15 from 11.1% at 4Q14. The higher vacancy
rate stemmed from a more than doubling in available sublease space from 3.8mn square
feet at 4Q14 to 8.0mn square feet at 4Q15. Another 8mn square feet of office space under
construction is scheduled to be delivered in 2016. With 60% of the new office space being
delivered preleased, about 3mn square feet will be added to the Houston office market this
year. The Greater Houston partnership expects the effective vacancy rate in the Houston
office market to breach 20% before peaking. According to CBRE, some landlords are
already offering six to 18 months of free rent on new office leases.
FIGURE 22
Houston Office Market Vacancy Rates, All Classes
16.5%
14.5%
13.0%
11.1%
9.5%
Transwestern
17.6%
15.4%
13.8%
11.1%
10.8%
JLL
4Q14
Colliers
4Q15
14.2%
11.6%
CBRE
4Q15 with sublease
Source: Barclays Research, Greater Houston Partnership, quarterly market reports of the firms
On a brighter note, the retail component of Houstons CRE market remains fairly resilient in
the face of continued oil price declines. Houstons average retail vacancy rate was 5.8% at
4Q15, which is down 30bps from 6.1% at 4Q14. The industrial portion of Houstons CRE
market is also faring relatively well. According to CBRE, Houstons industrial vacancy rate
declined slightly to 4.9% at 4Q15 from 5.0% at 4Q14, even after absorbing 6.3mn square
feet in 2015.
The Houston residential housing market also held up reasonably well throughout most of
2015. In fact, 2015 marked the second best year on record for Houston home sales, with
Houston-area realtors selling 73,724 single-family homes, which was down 2.4% from the
record 75,535 homes sold in 2014. Houston home sales through the first three quarters of
2015 actually outpaced the first three quarters of 2014 by 0.6%. However, the uncertainty
created by the ongoing decline in oil prices caught up with the residential housing market
by 4Q15, with home sales falling 10% from last years comparable period. The slowdown in
sales allowed Houstons residential home inventory to increase from a record low of 2.5
months to 3.2 months at December 2015. Still, this continues to compare favorably with
the national housing supply at 5.1 months of inventory. A January 18, 2016, WSJ article
titled, Oil Slump Hits Houston Home Market, explained that the higher end Houston home
market has been hit especially hard, with the number of homes listed at $1mn or more up
12 February 2016
22

54% y-o-y at 3Q15. See our section titled Houston-specific Commentary toward the end
of this report for individual bank disclosures.
FIGURE 23
Houston Home Sales vs. Months of Inventory
months
units
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2006
2007
2008
2009
Sales
2010
2011
2012
2013
2014
2015
months of inventory
Source: Barclays Research and Texas A&M University Real Estate Center
FIGURE 24
Commercial Real Estate Loans to Total Loans, 3Q15
% Loans
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
CRE/Loans
1
Not Rated. Source: Barclays Research and SNL Financial LC
Capital Markets
There are also concerns about the potential impact on credit markets, in particular highyield bonds. Energy companies comprise roughly 10-15% of the U.S. high-yield bond
market. In addition, a greater proportion of debt issues in emerging markets is tied to
energy companies or to corporates and sovereigns in countries where oil profits account for
a meaningful portion of GDP causing stress. Russia and Venezuela are current examples,
while Latin America in the 1980s experienced significant issues. Given dealers lower
inventory levels today relative to pre-crisis, we view believe the greater risk to revenue is
from a potential drop in client flows due to volatility and poor market liquidity, rather than a
significant writedown of assets. In addition to spread widening, the recent drop in equity
markets has the ability to curtail both M&A and underwriting. To date, announced M&A, as
well as both debt and equity underwriting, are down from the prior year. In addition, fixed
income (FICC) trading revenues fell again in 2015. Commodities trading revenues fell in
12 February 2016
23

2015 from the prior years strong results. While 2015s results benefited from continued
volatility in oil prices, it was not enough to offset the benefit of an unusually cold winter
elevating 2014s levels. Additionally several banks retooled here. We saw another year of
sharp contraction in 2015, after falling in 2014, as lower client activity, reduced primary
issuance, illiquidity, and spread widening have weighed on results.
Interest Rates
Disinflation pressures associated with the falling oil prices, a weaker outlook for global
growth, and aggressive policy actions from the ECB and BoJ, have pressured interest rates
and resulted in the Fed Futures moving from pricing in a 50bp increase in Fed Funds for
2016 at the start of the year to now essentially predicting nothing. Going into the year,
many investors were constructive on banks under the belief the Fed would increase interest
rates, driving net interest margins higher. Now, there is increased talk of the potential for
negative interest rates in the U.S. should global concerns continue.
Bank Lending
In early February, the Federal Reserve released the results of its quarterly Senior Loan Officer
Survey, which was taken from Dec. 29 through Jan. 12. It stated banks expect to tighten
their lending standards on C&I and CRE loans, while C&I delinquencies and charge-off rates
are expected to increase, albeit from levels well below their historical averages. A majority
of the domestic respondents that tightened either standards or terms on C&I loans cited a
less favorable or more uncertain economic outlook as well as a worsening of industryspecific problems affecting borrowers as important reasons, with some banks noting in
their optional comments that energy-related industries, including oil and gas, were the
concern. Significant net fractions of banks also attributed the tightening of loan terms to
reduced tolerance for risk; decreased liquidity in the secondary market for these loans; and
increased concerns about the effects of legislative changes, supervisory actions, or changes
in accounting standards. Energy loan balances declined in 4Q15 driven by pay-downs tied
to capital markets and private equity activity, combined with less drilling activity. Further
energy loan attrition is likely. Still, we do not believe reduced energy prices will adversely
impact banks desires to lend to unrelated industries. Still, bank lending is a reflection of the
economy, so overall economic growth does matter.
FIGURE 25
% of Banks Reporting Stronger Demand for C&I Loans vs.
C&I Loan Growth
FIGURE 26
% of Banks Tightening Standards for C&I Loans vs.
Delinquency and Charge-off Rates
60%
30%
100%
7%
40%
20%
80%
6%
20%
10%
60%
5%
0%
0%
40%
4%
20%
3%
0%
2%
-20%
1%
-20%
-10%
-40%
-20%
-60%
-30%
-80%
1Q90
-40%
1Q94
1Q98
1Q02
1Q06
1Q10
1Q14
C&I Loan Growth (right)

Loans to Large & Medium-sized Firms (1yr forward, left)
Loans to Small Firms (1yr forward, left)
Source: Barclays Research, Company reports
12 February 2016
-40%
1Q90
0%
1Q94
1Q98
1Q02
1Q06
1Q10
1Q14
C&I Delinquency Rate (right)

C&I Charge-Off Rate (right)
Loans to Large & Medium-sized Firms (1yr forward, left)
Loans to Small Firms (1yr forward, left)
Source: Barclays Research, Company reports
24
Additional Energy Exposure Details

With the banks 4Q15 earnings releases, disclosures around energy lending increased.
We will be looking for even greater detail in the upcoming 10-K filing season (deadline
is Feb. 29).
Associated Banc-Corp (ASB): ASBs oil and gas loans totaled $752mn (4% of total loans)
at 4Q15, which represented a $6mn linked quarter decline. Its oil and gas loans are entirely
Exploration & Production (E&P) based. Based on its borrowers percentage of revenue from
oil and gas, its energy lending exposure is ~65% oil and ~35% gas. ASBs energy reserve
increased to $42mn (5.58% of energy loans) at 4Q15 from $32mn (3.83%) at 3Q15. It
considers its 5.6% reserve one of the highest for banks exclusively focused on E&P lending.
However, it also maintains a comparatively high percentage of Shared National Credits in its
energy portfolio (~96% of its energy book). ASBs criticized/classified oil and gas loans
increased by $52mn linked quarter to $210mn (28% of its energy loans) at 4Q15 and its
energy nonaccruals rose $7mn to $20mn.
Bank of America (BAC): BACs utilized energy exposure totaled $21.3bn (includes $1bn in
traded products) at 4Q15, which represented about 2% of its total loans and leases. Its
utilized energy exposure declined $0.5bn from 3Q15 and $2.6bn, or 11%, from 4Q14. It
considers its higher risk energy sub-sectors to be its oilfield services ($3.4bn or 16% of its
energy book) and E&P ($4.9bn or 23%) portfolios, which collectively account for 39% of its
utilized energy exposure. The rest of BACs energy portfolio includes its refining &
marketing ($5.6bn or 26% of its energy book), vertically integrated ($5.8bn or 27%), and all
other energy ($1.6bn or 8%) loans. Its energy criticized exposure totaled $4.7bn, or 22% of
its utilized exposure at 4Q15. BACs energy-related loan loss allowance totaled $500mn
(2.4% of its utilized energy exposure) at 4Q15, which represents about 6% of its exposure
to its two higher risk lending segments (oilfield services and E&P).
BB&T Corp. (BBT): BBTs oil and gas portfolio totaled $1.4bn, or 1% of its total loans at
4Q15. The mix of its energy portfolio was 67% upstream, 30% midstream, and 3% in
support services. Its portfolio had no delinquencies, nonaccruals or losses at 4Q15. Its
energy reserve totaled 5% of its energy loans at 4Q15.
BOK Financial Corporation (BOKF; Not Rated): BOKFs energy commitments totaled
$5.6bn and it had $3.1bn (19% of its total loans) in outstanding energy loans at 4Q15. Its
energy portfolio is split roughly ~60%/40% between oil and gas. SNCs represent 52% of its
energy commitments and 46% of its outstandings. The mix of its energy portfolio was 82%
E&P, 9% services, 6% midstream, and 3% wholesale/retail at 3Q15. It had no funded
exposure to any of the 42 E&P companies that declared bankruptcy in 2015. Its criticized
energy loans totaled $326mn (10.5% of its energy loans) at 4Q15, which was up from
$196.3mn (6.9%) at 3Q15. BOKFs potential problem energy loans increased to $129.8mn
(4.2% of energy loans) at 4Q15, which was up from $96.4mn (3.4%) at 3Q15. Its energy
reserve totaled 2.89% of its energy loans at 4Q15.
Citigroup (C): Cs energy/energy-related exposure totaled $58bn (87% investment grade),
of which $20.5bn (3.3% of total loans) was funded (68% investment grade) at 4Q15. Its
utilized energy exposure consisted of E&P ($6.2bn or 30% of its energy book), midstream
($4.2bn or 20%), vertical integration ($5.6bn or 27%), and all other energy ($4.5bn or
22%). Energy accounted for about 9% of Cs consolidated corporate credit exposure at
4Q15. It incurred roughly $75mn of net credit losses on a limited number of credits in its
energy portfolio in 4Q15, about two-thirds of which were offset by related reserve releases.
Excluding the impact of these specific reserve releases, C built its energy reserve by roughly
$300mn in 4Q15, reflecting its view that oil prices were likely to remain low for a longer
period of time.
12 February 2016
25

Cullen/Frost Bankers (CFR): CFRs outstanding energy loans totaled $1.76bn at 4Q15,
representing 15.3% of its total loans. Its energy portfolio loan mix was 71% E&P ($106mn
in problem loans), 16% services ($46mn), 4% manufacturing ($20mn), and the remaining
10% private client (rich people), transportation, refining, and traders (no identified problem
loans) at 4Q15. CFRs problem energy loans totaled $172mn (9.8% of energy loans) at
4Q15, up from $125mn (7.0%) at 3Q15. Its problem loan increase stemmed from two
borrowers: one production-based credit ($23mn) and one manufacturer of oil and gas
components ($14mn). CFRs criticized energy loan balance reached $160mn (to a still
comparatively low 9.1% of its energy loans) at 4Q15, which was up from $141mn at 3Q15.
Its energy portfolio mix was about 55% oil and 45% natural gas at 4Q15. Shared National
Credits (SNC) represent about 30% of its outstanding energy loans. The Fall borrowing
base redeterminations had a minimal impact on asset quality trends within its oil and gas
production portfolio. CFRs energy reserve totaled $54mn at 4Q15, or 3.1% of its
outstanding energy loans at 4Q15. Its nonaccrual energy loans totaled $21mn ($13mn at
3Q15) at 4Q15. CFRs energy NCOs totaled only $6mn in 2015, representing just 20% of its
gross charge offs.
Comerica (CMA): CMAs energy portfolio totaled $3.1bn (6.3% of total loans) at 4Q15,
which was down 5.3% ($173mn) linked quarter. It maintained an additional $625mn of
exposure to companies with a significant amount of revenue tied to the energy industry.
Including CMAs exposure to clients with significant ties to the energy industry, its energyrelated loan mix increased to 7.5% of its total loans. E&P accounts for 69% of its energy
portfolio, with services accounting for 16%, and midstream for the remaining 15%. CMA
increased its energy portfolios allowance for loan losses to greater than 4% of energy loans
at 4Q15. About 38% ($1.4bn, +$295mn from 3Q15) of CMAs energy and energy-related
portfolio was classified as criticized, including non-accruals of $161mn (up $35mn from
3Q15) with $33mn ($6mn NCOs in energy-related) of NCOs in 4Q15. Its Fall borrowing
base redeterminations resulted in a 10% reduction in borrowing bases on average. CMA
noted that 59% of borrowers have hedged 50% or more of their production for one year
and 30% have 50% or more hedged for two years. Despite the increase in its energy
reserve in 4Q15, CMA remains comfortable with its energy portfolio.
Capital One Financial (COF): COFs loans to the oil and gas industry total $3.1bn (1.3% of
total loans). However, some 18% of its deposits are housed in Louisiana and 11% are in
Texas. Within its oil and gas portfolio, around half is E&P and about 33% is in oilfield
services. COF expects its energy loans to continue to present challenges and has
established appropriate reserve levels for this concern. Out of its $604mn commercial loan
allowance, $190mn (6.1% of its energy loans) was allocated for its energy book.
First Interstate BancSystem (FIBK): FIBKs direct exposure to the oil and gas industry is
approximately $75mn (1.5% of total loans) in outstanding loans at 4Q15, with an additional
$24mn in commitments. The composition of the $75mn in outstanding loans includes
$50mn related to drilling and extraction activity and $25 million to the oil and gas service
companies. It has $4mn in specific reserves in its energy book and general reserves of about
$1.8mn. This means FIBKs total energy reserve was a comparatively healthy 7.7% at 4Q15.
However, its energy portfolios criticized loan percentage was also comparatively elevated at
36.4% at 4Q15. Oil prices have now been declining for more than 1.5 years and FIBK has
yet to observe a meaningful impact on its credit quality. FIBKs branch footprint includes
the states of Montana, Wyoming, and South Dakota. However, since its Billings, MT
headquarters is just a five-hour drive to the Bakken, some are concerned its local economies
could slow now that the Bakkens regional economic stimulus has come to an end.
Fifth Third Bancorp (FITB): FITBs energy portfolio increased $107mn sequentially to
$1.7bn (1.8% of total loans) in 4015, with most of its growth in the midstream sector. The
12 February 2016
26

mix of its energy loans was 45% reserve based lending, 19% midstream, 18% oilfield
services, 13% upstream, and 5% downstream. Within its reserve-based lending book, it is a
senior secured lender in many cases, with significant levels of subordinated risk ahead of its
position. Some $22mn of its NPL increase in 4Q15 came from its energy portfolio. FITBs
energy reserve totaled 4.75% of its energy loans at 4Q15.
Goldman Sachs Group (GS): GSs energy lending exposure (funded & unfunded) totaled
$10.6bn at 4Q15, of which $1.8bn (1.9% of total loans) was funded. Of this total, $6.4bn
was investment grade ($0.2bn is funded) and $4.2bn was non-investment grade ($1.6bn is
funded; high single-digit percentage reserve). GS exposure to energy trading houses was
less than $0.2bn at 4Q15.
Huntington Bancshares (HBAN): HBANs energy exposure was comparatively modest at
about $300mn (0.6% of total loans) at 4Q15. The one area it is seeing some asset quality
volatility is in its E&P book (0.5% of loans). It has no exposure to oilfield services loans. The
majority of HBANs increased provision in 4Q15 stemmed from its small E&P portfolio and it
sees ongoing volatility going forward.
Hancock Holding Company (HBHC, Not Rated): HBHCs energy portfolio totaled $1.58bn
(10% of its total loans) at 4Q15. The mix of its energy loan portfolio is 36% E&P, 16%
drilling, 41% non-drilling (helicopter/marine transport, fabrication/construction,
support/mfg, and other), and 7% midstream. HBHC reduced its reserve-based lending
commitments approximately 15% on average in the Spring of 2015 due to lower
commodity prices, and by an additional 9-10% on average in its Fall redetermination due to
continued low commodity prices. Its customers are diversified across 12 primary basins in
the U.S. and in the Gulf of Mexico. Its current E&P line utilization is approximately 63%. It
lends only on proved reserves (on a risked basis) with 90%+ covered by Proved Developed
Producing Reserves alone. HBHCs criticized energy loans totaled $452mn (29% of its
energy loans) at 4Q15, which was down $16mn linked quarter. Its allowance for energy
related losses totaled $78mn (4.95% of energy loans) at 4Q15, which was up from $35.2mn
(2.12%) at 3Q15.
Independent Bank Group (IBTX, Not Rated): IBTXs energy loans totaled $205mn (5% of
its total loans) at 4Q15. Its E&P portfolio totaled $182.5mn and its oilfield services portfolio
was $22.4mn. Its criticized and classified E&P loans totaled $67.7mn at 4Q15 and none of
its oilfield services loans were criticized or classified. Its E&P exposure was to 25 borrowers
at 4Q15. IBTXs energy-related reserves comprised 4.1% of its E&P portfolio at 4Q15.
IBERIABANK Corporation (IBKC, Not Rated): IBKCs energy loan portfolio totaled $681mn
(4.8% of its total loans) at 4Q15, which was down from $719mn (5.1%) at 3Q15. SNCs
account for 64% its total energy lending balance. The mix of its energy book is 47% E&P,
36% services, and 17% midstream. It had $8.4mn (1.2%) in non-accrual energy loans at
4Q15, which was up from $5.3mn in 3Q15. It has incurred no energy-related charge-offs
for the past several years. Some 22% of its energy loans were criticized at 4Q15, with 12%
classified (subset of criticized). IBKCs energy reserve increased to $26.7mn (3.9% of energy
loans) at 4Q15 up from $19.0mn (2.6%) at 3Q15. The mix of its $717mn in energy
commitments was 58% oil and 43% gas at 4Q15. It lends only against proved reserves.
JPMorgan Chase & Co. (JPM): JPM added about $124mn (after $160mn in 3Q15, $140mn
in 2Q15 and $100mn in 1Q15) to its loan loss reserves related to its $14.5bn oil and gas
loan portfolio in 4Q15. If oil prices were to remain in the $30 area for an extended time, it
expects additional reserves of up to $750mn (~$0.13 to its EPS).
KeyCorp (KEY): KEYs energy lending exposure reached $3bn at 4Q15. Its oil and gas
industry exposure was $1.2bn, or about 2% of its outstanding loans. Its energy loan mix
includes $0.1bn in oilfield services exposure and $1.1bn in direct exposure to oil and gas
12 February 2016
27

production (unchanged from 3Q15), of which $0.6bn or 57% ($0.7bn or 62% in 3Q15) is
upstream, $0.4bn or 34% ($0.3bn or 28%) is midstream, and $0.1bn or 10% ($0.1bn or
9%) is downstream. Its energy reserve represented 6% of its outstanding energy loans.
Some 31% of KEYs energy loans were criticized at 4Q15.
Legacy Texas Financial Group (LTXB, Not Rated): LTXBs energy portfolio totaled $529mn
or 8.6% of its total loan at 4Q15. Its energy exposure includes $459.8mn in reserve-based
loans, $64.6mn in midstream loans, and just $4.7mn in loans to oilfield service companies.
The mix of LTXBs reserve-based energy portfolio was 53% gas and 47% oil at 4Q15. Its
energy reserve totaled $12.0mn (2.3% of its energy loans) at 4Q15, which was up from
$4.9mn at 3Q15. At 4Q15, 75% of its oil exposure was hedged for 2016 at an average price
of $68.94 and 77% of its gas exposure was hedged at an average price of $3.41. For 2017,
it reported that 52% of its oil exposure (average price of $63.79) and 70% of its gas
exposure (average price of $3.40) was hedged.
Morgan Stanley (MS): MS energy lending exposure was $16bn (-$1bn), of which 60% is to
investment grade counterparties, while 40% is fair value or HFS. Around 30%, or $5bn, is
funded.
Prosperity Bancshares (PB, Not Rated): PBs total oil and gas loans totaled $399mn (4.2%
of total loans) at 4Q15. Its oil and gas loan mix was ~45% E&P and 55% service companies
at 4Q15. Of its $399mn in oil and gas loans, $353mn is subject to its allowance for loan
losses methodology. Its reserve on its $353mn in oil and gas loans subject to its allowance
methodology was 2.71% at 4Q15. Some $19mn of its $399mn in total oil and gas loans
was nonperforming at 4Q15. It charged off approximately $2.8mn in oil and gas loans, but
recovered about $2.2mn charge-offs in 4Q15. Accordingly, PBs net charge-off on the oil
and gas side was only a little over $600,000 in 4Q15. It does not have any SNC energy
loans.
PNC Financial Services (PNC): PNCs outstanding energy loans totaled $2.6bn (1.3% of
total loans) at 4Q15, which was unchanged linked quarter. This represented ~2% of its
commercial loan book. This includes ~$700mn in outstandings to E&P companies, $1bn to
midstream and downstream, and $900mn to oilfield services. Some $200mn of its oilfield
services portfolio is not asset-based or investment grade, which it thinks poses the greatest
near-term risk. It continued to experience some portfolio deterioration in the 4Q15, though
charge-offs were quite modest. PNC increased its energy reserve in 4Q15 to reflect the
impact of the ongoing declines in oil and gas prices.
Regions Financial (RF): RFs energy exposure totaled $3.2bn at 4Q15 or 4.0% of its total
loans (4.0% in 3Q15) at 4Q15, which was down 1.4% linked quarter. Its energy portfolios
mix was 32% oilfield services, 30% exploration & production (upstream), 14% mid-stream,
2% downstream, and 17% other indirect exposure. Its securities portfolio contained about
$229mn (-$11mn) of high quality, investment grade corporate grade bonds that are energy
related at 4Q15. Its criticized energy loans amounted to $900mn (28%). Its energy
reserves now stands at 6% (above $150mn) of its direct energy exposure (compared to
$122mn or 4.5% at 3Q15). During the Fall borrowing base redetermination period, RF
reduced borrowing bases by about 8%, which follows its 15% reduction in the spring.
SunTrust Banks (STI): STIs energy-related loans totaled $3.0bn (down 11% y-o-y) at
4Q15, which represents ~2.2% of its total loans. About 40% of its energy exposure was to
E&P and oilfield services companies, which are the areas it expects to be most adversely
impacted by the prolonged low oil prices. About one third to one half of its energy portfolio
is classified as investment grade. The criticized portion of its energy loans reached 20% of
its total energy loans at 4Q15. STI held a 4.5% reserve against its entire energy portfolio at
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4Q15, though when isolated to E&P and oilfield services, the two most severely impacted
sectors, its reserve is closer to 12%.
Texas Capital Bancshares (TCBI): TCBIs energy portfolio totaled $1.2bn (7% of total
loans) at 4Q15, up from $1.1bn (7%) at 3Q15. Its energy portfolios mix was relatively
stable linked quarter, with E&P accounting for 5% of its total loans (61% oil and 39% gas),
oilfield services at 1% (exposure primarily tied to production), and other 1% (cash or asset
secured, or guaranteed). Some 59% of its book is non-shared national credit (SNC), 41% is
SNC, with 14% of its SNC credits agented by itself. It is essentially the lead or agent on
~65% of its energy portfolio. Its non-accrual energy loans increased by $84mn linked
quarter to $120.4mn at 4Q15. TCBI looks for continued risk grade migration, as low oil
prices persist. However, it still anticipates some new high quality energy opportunities to
crop up in 2016, as some properties change ownership. Its energy reserve was $32mn or
~3% of energy loans at 4Q15. Some $130mn (11% of its energy book) of its energy loans
were classified and $199mn (17%) were criticized. Some 73% of its oil-weighted borrowers
have accretive hedges (defined as $50/barrel or better floors) in place for 2016. Moreover,
over 50% of TCBIs oil-weighted borrowers have accretive hedges in place covering at least
50% of engineered production volumes for 2016.
U.S. Bancorp (USB): USBs energy portfolio totaled $3.2bn or 1.2% of its total loans at
4Q15. It added to its energy reserves in 4Q15, with its reserve totaling 5.4% of energy loans
at 4Q15.
Wells Fargo & Co. (WFC): WFCs energy exposure totaled $17bn in loans (roughly 2% of
outstandings) and $2.5bn in securities (including AFS and nonmarketable securities) at
4Q15. It explained on its 4Q15 conference call that most of its $17bn in energy loan
exposure was non-investment grade. Its energy-related loan exposure was 50% E&P, 25%
oilfield services, and 25% pipelines, storage and other midstream activities. WFCs energy
related reserves totaled $1.2bn or 7% of its energy loan portfolio at 4Q15. Some 38% of its
energy loan portfolio or $6.6bn (33% in 3Q15) was criticized at 4Q15, up $5.5bn from
4Q14. WFCs oil and gas losses totaled $118mn in 4Q15, up from $90mn in 3Q15. Its oil
and gas nonaccruals increased by $277mn in 4Q15.
Zions Bancorporation (ZION): ZIONs oil and gas loans totaled $2.6bn (6.5% of total loans)
at 4Q15, which was down from $2.8bn (7.0% of total loans) at 3Q15. Its oil and gas loan
mix was 31% E&P, 23% midstream, 5% downstream, 2% other non-services, 30% oilfield
services, and 9% energy service manufacturing at 4Q15. Its unused commitments to
extend credit to energy-related borrowers totaled another $2.2bn. Some $66mn, or 2.5%,
of ZIONs oil and gas book was non-accruing at 4Q15, which compared to $84mn, or 3.0%,
at 3Q15. Its classified oil and gas loans increased by 17% linked quarter to $517mn (19.7%
of its oil and gas loans) at 4Q15 from $440mn (15.7%) at 3Q15. Criticized loans in its
energy loan portfolio represented 30.3% of its total oil and gas loans at 4Q15, up from
23.2% at 3Q15. The majority of its oil and gas loan downgrades in 4Q15 reflected
deterioration in the financial condition of its oilfield services companies, and to a lesser
degree a small number of downgrades in its upstream portfolio. As a result of the Fall
redetermination of E&P loan borrowing bases, ZIONs borrowing base for total E&P
commitments, including new commitments, declined 9% since the Spring 2015
redetermination. Its energy-related loan net charge-offs totaled $24mn (3.7% annual rate)
in 4Q15 and were predominantly in its energy services portfolio, compared to $17mn
(2.4%) in 3Q15. ZIONs reserve for its oil and gas portfolio was greater than 5% of its
energy loans at 4Q15, which was up from 4%+ at 3Q15.
Additional Houston-specific Commentary

Zions Bancorporation (ZION): At 3Q15, ZION has $1.3bn in term CRE in Texas, with its
Houston exposure representing about 55% of its overall balance or $734mn. ZION office
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29

CRE exposure in Houston is around $150mn, with the largest component of its Houston
CRE book multifamily at around $275mn. It has explained that the amount of equity
required in office and multi-family construction financing is almost double today than what
it was going into the 2008 cycle. ZION also had $256mn in residential construction and
land development loans in Texas at 3Q15, with about 71% of that balance, or $182mn, in
Houston. Finally, it had $492mn in commercial construction and land development loans in
Texas at 3Q15, with some 53% of this balance, or $261mn, in Houston. Accordingly,
ZIONs Houston CRE exposure totaled about $1.2bn, or about 2.9% of its total loans, at
3Q15. It noted on its 4Q15 conference call that its construction and land development loan
balance in Houston is down more than 80% from the prior credit cycle.
Prosperity Bancshares (PB, Not Rated): Only about 25% to 30% of PBs assets reside in the
immediate Houston market. It looks for the Houston economy to soften, but stressed that
its CRE portfolio does not have any downtown buildings and is mostly owner-occupied. It
sees the softness in Houston primarily in non-owner-occupied office facilities and
apartments. PBs exposure to both of these areas is not material to its overall portfolio. It
only has a few non-owner-occupied office buildings and apartment complexes in Houston
on its balance sheet.
Cullen/Frost Bankers (CFR): CFR explained on its 4Q15 conference call that it is not seeing
any significant contagion from energy weakness across its broader Texas footprint. It
attributed this result to the states increased economic diversity. It characterized the
Houston environment as cautious, with clients double checking all of their projects and
asking what makes sense today. Some are delaying projects from late 2015 into early 2016
to wait and see what develops with oil price and in some cases are holding off on phase 2s.
Single-family housing remains strong in its view as it attempts to catch-up with the job
growth that has already occurred. It emphasized that retail and industrial vacancy rates
remain low. Of course, Houston remains a tale of submarkets, with some markets stronger
than others. CFR reported signs of softening in the energy corridor. Its Houston CRE
commitments over $250,000 totaled $934mn at 4Q15, with outstanding loans at about
66% of that number or $616mn. Including construction and land, CFRs total Houston CRE
balance was closer to $890mn, or 7.7% of its total loans, at 4Q15. From a more granular
perspective, its Houston CRE owner-occupied runs about $445 million and its non-owner
occupied (investors and major tenant) would be the balance of that or about $445mn.
Within its investor CRE book it has about $195mn exposure to office and about $100mn to
multi-family.
Capital One Financial (COF): About 5% of COFs credit card portfolio is in parts of the
country with high energy employment concentration. That said, when it looks at these
geographies, places like Houston, parts of North Dakota, Alberta Province and Canada, it is
experiencing slight upticks in card delinquencies. Accordingly, where appropriate, it has
taken steps to surgically tighten its underwriting in these geographies, although it said it
wants to be careful to not overreact to these very modest effects.
Comerica (CMA): Within CMAs Texas footprint, it recently noted that Houston will be the
most impacted by the continuing oil price declines. It explained that Dallas maintains a very
robust economy as does Fort Worth. Austin is a technology-oriented city and capital of
Texas which mitigates the impact of a weaker energy sector. Out of CMAs $3.8bn in CRE
loans outstanding, only about $300mn (just 0.6% of total loans) are in Houston. The vast
majority of its Houston CRE exposure is in multifamily, as it has virtually no office in
Houston. Its portfolio is primarily an apartment construction book. CMA recently
completed a pretty extensive stress test on its Houston CRE portfolio and was quite pleased
with the results. It stressed its book under three different conditions, with the most severely
12 February 2016
30

adverse case under conditions it has never seen before and even under those conditions it
did not see any credit losses in the portfolio.
Texas Capital Bancshares (TCBI): While its Houston CRE portfolio remains under close
oversight, TCBI is pleased with the current health of its portfolio. It pointed out recently that
market intelligence indicates industrial and retail CRE remains strong in Houston, while
office and multifamily appear to be softening. TCBIs Houston CRE exposure was $667mn,
or 5.7% of its total loans held for investment (ex. its mortgage warehouse portfolio), at
4Q15. The mix of its Houston CRE portfolio was $215mn (32% of total Houston CRE)
apartment buildings, $91mn (14%) commercial buildings, $102mn (15%) shopping
center/mall buildings, $84mn (13%) hotel/motel buildings, $106mn (16%) manufacturing,
and $70mn (10%) other. However, its view of its Houston CRE exposure excludes loans
related to its builder finance line of business. As of 4Q15, some $9mn of its Houston CRE
book was classified as special mention and $0.3mn was substandard. It had no NPAs in
its Houston CRE portfolio. TCBI has seen very little spill over in Houston from energy into
the broader C&I space.
BOK Financial Corporation (BOKF; Not Rated): BOKF thinks its real estate portfolio is
holding up pretty well and it has not experienced significant spillover impacts from the
energy downturn in other parts of its lending portfolio. Its CRE exposure in Houston totaled
$320mn, or 2% of its total loans, at 4Q15. Approximately 51% of its Houston exposure was
retail, 19% industrial, 9% multi-family, and 9% in office, with the balance in other. BOKF
has no downtown office exposure in Houston.
12 February 2016
31
ANALYST(S) CERTIFICATION(S):
In relation to our respective sections we, Jason M. Goldberg, CFA, Matthew J. Keating, CFA, Brian Monteleone and Daniel Lang, hereby certify (1)
that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred
to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or
views expressed in this research report.
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12 February 2016
32

Yield 3% Issuer Capped Credit Index excluding Financials and are rated against the Barclays Pan-European High Yield 3% Issuer Capped Credit
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issuers rand-denominated fixed rate notes or floating rate notes (as applicable) relative to the South African Credit Fixed Market Index (CFIX95)
or the South African Credit Floating Market Index (CFL020), respectively.
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applicable) to exceed the six-month expected total returns the South African Credit Fixed Market Index (CFIX95) or the South African Credit
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Market Weight (MW): The analyst expects the six-month total returns of the issuers rand-denominated fixed rate notes or floating rate notes (as
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Underweight (UW): The analyst expects the six-month total returns of the issuers rand-denominated fixed rate notes or floating rate notes (as
applicable) to be below the six-month expected total returns the South African Credit Fixed Market Index (CFIX95) or the South African Credit
12 February 2016
33

Floating Market Index (CFL020), respectively..
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12 February 2016
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companies with this rating are investment banking clients of the Firm.
40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 50% of
15% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 43% of
Guide to the Barclays Research Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will
trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price
target over the same 12-month period.
12 February 2016
35

Top Picks:
Barclays Equity Research's "Top Picks" represent the single best alpha-generating investment idea within each industry (as defined by the relevant
"industry coverage universe"), taken from among the Overweight-rated stocks within that industry. Barclays Equity Research publishes global and
regional "Top Picks" reports every quarter and analysts may also publish intra-quarter changes to their Top Picks, as necessary. While analysts
may highlight other Overweight-rated stocks in their published research in addition to their Top Pick, there can only be one "Top Pick" for each
industry. To view the current list of Top Picks, go to the Top Picks page on Barclays Live (https://live.barcap.com/go/keyword/TopPicksGlobal).
To see a list of companies that comprise a particular industry coverage universe, please go to http://publicresearch.barclays.com.
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Barclays Bank PLC, Tokyo branch (Barclays Bank, Japan)
Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)
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Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)
Barclays Bank PLC, Australia branch (Barclays Bank, Australia)
12 February 2016
36
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U.S. Large-Cap & Mid-Cap Banks - Drilling Into Energy Exposure

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U.S. Large-Cap & Mid-Cap Banks - Drilling Into Energy Exposure

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Cross Asset Research

Drilling into Energy Exposure

Equity Research: U.S. Large-Cap Banks

Credit Research View: Stress Testing Energy Exposure

*This author is a member of the Fixed Income,

Barclays | U.S. Large-Cap & Mid-Cap Banks

Barclays | U.S. Large-Cap & Mid-Cap Banks

Direct Energy Lending Detailed

Energy Loans / Total Loans

E&P + Oil Field Services / TCE (right axis)

Barclays | U.S. Large-Cap & Mid-Cap Banks

Loan Mix by Rating, Status

JPM's reserve is estimated.

Barclays | U.S. Large-Cap & Mid-Cap Banks

Barclays | U.S. Large-Cap & Mid-Cap Banks

* This author is a member of the Fixed

Income, Currencies and Commodities

Research department and is not an

Determining oil price scenarios for stress test

JPM and BAC include derivative counterparty exposure

Barclays | U.S. Large-Cap & Mid-Cap Banks

Source: Bloomberg, Barclays Research

Assessing HY risk: Redetermination dilemma to affect RBL draws and defaults

Barclays | U.S. Large-Cap & Mid-Cap Banks

Assessing the risk within investment grade revolvers

Barclays | U.S. Large-Cap & Mid-Cap Banks

Oil field services

Oil field services

Oil field services

Source: Barclays Research

Barclays | U.S. Large-Cap & Mid-Cap Banks

Funded Energy Exposure

Unfunded Energy Exposure

Total Energy Exposure

Stressed incremental losses

Estimated stressed losses

After-tax charge/CET1 capital

Consensus 24 month pre-tax profit

Severe stress scenario

Barclays | U.S. Large-Cap & Mid-Cap Banks

Stressed incremental losses

Estimated stressed losses

After-tax charge/CET1 capital

Consensus 24 month pre-tax profit

Barclays | U.S. Large-Cap & Mid-Cap Banks

Source: Barclays Research and Thomson Reuters

Source: Barclays Research, Haver Analytics, and CME Group

Source: Barclays Research, Haver Analytics, and CME Group

Barclays | U.S. Large-Cap & Mid-Cap Banks

Source: Barclays Research and Cullen/Frost filings

Source: Barclays Research and Cullen/Frost filings

Barclays | U.S. Large-Cap & Mid-Cap Banks

Banks Near-term Loss Expectations

$700mn NCOs; +$900mn LLP

Source: Company and Barclays Research

Barclays | U.S. Large-Cap & Mid-Cap Banks

Barclays | U.S. Large-Cap & Mid-Cap Banks

Assessing Energy Reserves

Criticized energy loans %

Barclays | U.S. Large-Cap & Mid-Cap Banks

Energy loan concentration %

Barclays | U.S. Large-Cap & Mid-Cap Banks