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Rating Action:

Moody's affirms ratings of seven energy-concentrated US regional banks; six have stable outlooks

02 Mar 2017

Moody's Investors Service changes outlooks of Amarillo, Comerica and Texas Capital to stable; outlook of Associated remains negative

New York, March 02, 2017 -- Moody's Investors Service has affirmed the ratings of seven US regional banking groups with comparatively high energy-lending concentrations. Moody's maintained a stable rating outlook on three of the banks. Moody's returned the outlook to stable from negative on three additional banks, and for one bank, Associated Banc-Corp (Senior Unsecured Baa1), Moody's maintained a negative outlook.

The long-term ratings, standalone baseline credit assessments (BCA), adjusted BCAs, and long-term Counterparty Risk (CR) Assessments of the following three banks were affirmed, maintaining stable outlooks: BOK Financial Corporation (Issuer Rating A3); Cullen/Frost Bankers, Inc. (Issuer Rating A3); Hancock Holding Company (Issuer Rating Baa3). The long-term ratings, standalone baseline credit assessments (BCA), adjusted BCAs, and long-term Counterparty Risk (CR) Assessments of the following three banks were affirmed and their outlooks were changed to stable from negative: Amarillo National Bank (Issuer Rating Baa1); Comerica Incorporated (Issuer Rating A3); Texas Capital Bancshares, Inc. (Issuer Rating Baa3). The long-term ratings, standalone baseline credit assessment (BCA), adjusted BCA, and long-term Counterparty Risk (CR) Assessment of the Associated Banc-Corp (Senior Unsecured Baa1) were also affirmed, but maintained their negative outlook.

A complete list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Moody's said the rating affirmations reflect three broad factors. First, Moody's expects oil prices to remain in the $40-$60 per barrel range (bbl) in the medium term recovering from 2016 lows of $26/bbl, which will continue to offer relief for oil producers. Second, these banks comparatively large energy-related loan exposures when compared to their tangible common equity (TCE) largely declined in 2016. Third, the need for incremental loan-loss reserves is manageable for these banks thanks to the above-mentioned oil price expectations and banks' reduced exposures. As a result, Moody's believes these banks' loan-loss reserves are sufficiently resilient to absorb Moody's expected remaining losses in their energy-related portfolios.

Regarding Amarillo, the affirmation and stable outlook reflect its strong capital position and above-average profitability which mitigates its above-average energy exposure. Under its base scenario, Moody's believes additional provisioning for its energy portfolio will be covered by its earnings. The affirmation also incorporates its conservative credit culture, which has produced consistent long-run asset quality performance despite its geographical concentration in Texas and its sizeable single borrower exposures in its core commercial lending franchise.

Regarding Associated, the affirmation reflects the bank's more modest and reduced energy exposure of 34% of TCE at year-end 2016 down from 40% a year ago. The ratings affirmation also takes into account Associated's strong funding and liquidity profile. However, Moody's maintained its negative outlook on the bank's ratings because of the above-average credit losses Associated took on its energy book during 2016 relative to its rated energy-concentrated US regional peers. Those losses were equal to around 8% of total energy loans versus an average of 2.4% for the energy-concentrated peers. Such loss levels reduced Moody's confidence that higher provisions will not be required. If required, such provisions would dampen the bank's already weak profitability relative to peers. Associated's capital ratios are also low relative to peers. Moody's did note that Associated's 2016 profitability was sufficient to absorb the higher energy-related charge-offs during the year and generate a stable return on average assets of 0.7%.

Regarding BOK, the affirmation and stable outlook reflect the reduction in the bank's energy exposure to 90% of TCE at year-end from 111% a year ago. The asset quality of BOK's non-energy loan portfolios remains sound despite the bank's significant operations in states that have above-average exposure to the energy sector, including Oklahoma and Texas. BOK's consistent profitability and strong capitalization and liquidity profile also support the bank's BCA at its current level of a2, above the median for Moody's rated US regional banks.

Regarding Comerica, the affirmation and stable outlook reflect its reduced energy exposure to 37% of TCE at year-end down from 54% a year ago. Comerica's energy exposure is mitigated by its energy reserve coverage of 7%. Moody's believes any need for incremental provisions will be covered by the bank's earnings under its base scenario. This view supports the adequacy of the bank's capital. Compared to 2016, when sizeable energy-related provisions pressured its already weak profitability, Moody's expects Comerica's 2017 profitability to improve because of lower energy-related provisions. In addition, higher interest rates will support its net-interest margin and its profitability. The affirmation also reflects Comerica's conservative credit culture, good asset quality performance and robust liquidity position.

Regarding Cullen/Frost, the affirmation and stable outlook reflect the reduction in its energy exposure to 64% of TCE at year-end down from 91% a year ago. It also reflects the bank's conservative underwriting in the energy sector reflected in its relatively low energy-credit losses, and its energy reserve coverage of 4.4% which is in line with Moody's base scenario. Under Moody's base scenario, the need for any incremental provisions will be covered by the bank's earnings. The affirmation also reflects its very good liquidity profile, the strong asset quality of its non-energy loan portfolios, and its solid capital ratios.

Regarding Hancock, the affirmation and stable outlook reflect its reduced energy concentration to 66% of TCE at year-end, which has improved from 89% a year ago. The improvement is a function of a reduction in outstanding energy balances as well as its December 2016 equity raise. The rating incorporates Hancock's more sizable exposure to the riskier oilfield services subsector, which make up 60% of its energy portfolio. Consequently, its exposure and loan mix result in comparatively higher loss assumptions for Hancock in Moody's stress test than for the other energy-concentrated banks. Nonetheless, Moody's believes Hancock is resilient under its base scenario. This view is supported by its strong reserve coverage of 7.5%. Moody's expects any need for incremental provisions will be covered by its earnings which supports Hancock's adequate capital position.

Regarding Texas Capital, the affirmation and stable outlook reflect the reduction in its energy exposure to 54% of TCE at year-end, down from 84% a year ago. The reduction is a function of a reduction in outstanding energy balances as well as its December 2016 equity raise. The affirmation also reflects Texas Capital's 6% reserve coverage. Moody's believes any need for incremental provisions will be covered by the bank's earnings under its base scenario, supporting the bank's capital adequacy. Moody's noted that Texas Capital's capital ratios are below the US median, but that it has some flexibility to improve its regulatory capital ratios by reducing its mortgage warehouse portfolio by selling participations. The affirmation also reflects its relative strength regarding profitability and liquidity.

What Could Change the Ratings Up or Down:

For Amarillo National Bank, upward rating pressure would emerge if the bank improved its geographical diversification without increasing its risk profile, which we see as unlikely. Downward movement in the BCA could emerge if we believe the bank's underwriting standards are weakening, possibly evidenced by above-average loan growth. An extended period of lower oil prices beyond Moody's expectations could also be credit negative, particularly if credit costs in the energy or non-energy portfolio are expected to be significant.

For Associated Banc-Corp, given the negative outlook, there is limited upward rating pressure at this time. Nonetheless, sustained stability in oil prices and improvement in the asset quality metrics of the bank's energy portfolio would return the outlook to stable. For upward rating pressure to emerge, the bank would need to show a sustainable improvement in its capitalization and core profitability without increasing its risk profile. Downward movement in the BCA could emerge if there is further deterioration in the bank's asset quality or a decline in core profitability or capital.

For BOK Financial Corporation, upward movement in the bank's BCA would depend on substantially improved profitability, capital, or asset quality. Downward pressure on the BCA could emerge if there is meaningful deterioration in asset quality or earnings.

For Comerica Incorporated, upward pressure would emerge if the bank demonstrated a sustained improvement in its profitability and capital without compromising its asset quality. Downward movement in the BCA could emerge if we view a change in posture towards capital management or credit appetite. An extended period of lower oil prices beyond Moody's expectations would also be credit negative particularly if credit costs in the energy or non-energy portfolio are expected to be significant.

For Cullen/Frost Bankers, Inc., upward rating pressure would emerge if Cullen/Frost improved its geographical diversification without increasing its risk profile. A meaningful reduction in the banks' energy concentrations would also be credit positive. Downward movement in the BCA could emerge if Moody's views a change in credit appetite, possibly evidenced by above-average loan growth.

For Hancock Holding Company, upward pressure would emerge if capital ratios improved and/or the bank reduced its energy exposure, particularly to the relatively riskier oilfield service sector. Downward movement in the BCA could emerge if Moody's views a change in posture towards capital management or credit appetite.

For Texas Capital Bancshares, Inc., upward pressure would emerge if capital ratios improved significantly and growth aspirations lowered, which we do not expect in the medium-term. Downward movement in the BCA could emerge if there was evidence of a relaxation in controls over the bank's commercial real estate and/or national lending businesses. An extended period of lower oil prices beyond Moody's expectations would also be credit negative particularly if credit costs in the energy or non-energy portfolio are expected to be significant.

LIST OF AFFECTED RATINGS:

Amarillo National Bank

.... Baseline Credit Assessment affirmed at a3

.... Adjusted Baseline Credit Assessment affirmed at a3

.... Long-term and short-term Counterparty Risk Assessments affirmed at A2(cr)/P-1(cr)

.... Long-term and short-term Deposit Ratings affirmed at A1, Stable/P-1

.... Issuer Rating affirmed at Baa1, Stable

....Outlook, Changed To Stable From Negative

Associated Banc-Corp

....Senior Unsecured Regular Bond/Debenture affirmed at Baa1 Negative

....Subordinate Regular Bond/Debenture affirmed at Baa1

....Preferred Stock Non-cumulative affirmed at Baa3 (hyb)

....Senior Unsecured Commercial Paper affirmed at P-2

....Senior Unsecured Shelf affirmed at (P)Baa1

....Subordinate Shelf affirmed at (P)Baa1

....Preferred Shelf Non-cumulative affirmed at (P)Baa3

....Subordinate MTN program affirmed at (P)Baa1

....Outlook, Remains Negative

Associated Bank, N.A.

.... Baseline Credit Assessment affirmed at a3

.... Adjusted Baseline Credit Assessment affirmed at a3

.... Long-term and short-term Counterparty Risk Assessments affirmed at A2(cr)/P-1(cr)

.... Long-term and short-term Deposit Ratings affirmed at A1, Negative/P-1

....Outlook, Remains Negative

BOK Financial Corporation

....Issuer Rating affirmed at A3 Stable

....Subordinate Regular Bond/Debenture affirmed at A3

....Subordinate Shelf affirmed at (P)A3

....Outlook, Remains Stable

BOKF, NA

.... Baseline Credit Assessment affirmed at a2

.... Adjusted Baseline Credit Assessment affirmed at a2

.... Long-term and short-term Counterparty Risk Assessments affirmed at A1(cr)/P-1(cr)

.... Long-term and short-term Deposit Ratings affirmed at Aa3, Stable/P-1

.... Issuer Rating affirmed at A3, Stable

.... Outlook, Remains Stable

Comerica Incorporated

....Issuer Rating affirmed at A3, Stable

....Senior Unsecured Regular Bond/Debenture affirmed at A3, Stable

....Subordinate Regular Bond/Debenture affirmed at A3

....Outlook, Changed To Stable From Negative

Comerica Bank

.... Baseline Credit Assessment affirmed at a2

.... Adjusted Baseline Credit Assessment affirmed at a2

.... Long-term and short-term Counterparty Risk Assessments affirmed at A1(cr)/P-1(cr)

.... Long-term and short-term Deposit Ratings affirmed at Aa3, Stable/P-1

.... Issuer Rating affirmed at A3, Stable

.... Senior Unsecured Regular Bond/Debenture affirmed at A3, Stable

.... Subordinate Regular Bond/Debenture affirmed at A3

.... Long-term and short-term Senior Unsecured Bank Note Program affirmed at (P)A3/(P)P-2

.... Subordinate Bank Note Program affirmed at (P)A3

....Outlook, Changed To Stable From Negative

Cullen/Frost Bankers, Inc.

....Issuer Rating affirmed at A3 Stable

....Preferred Stock Non-cumulative affirmed at Baa2 (hyb)

....Outlook, Remains Stable

Frost Bank

.... Baseline Credit Assessment affirmed at a2

.... Adjusted Baseline Credit Assessment affirmed at a2

.... Long-term and short-term Counterparty Risk Assessments affirmed at A1(cr)/P-1(cr)

.... Long-term and short-term Deposit Ratings affirmed at Aa3, Stable/P-1

.... Issuer Rating affirmed at A3, Stable

.... Outlook, Remains Stable

Cullen/Frost Capital Trust II

....Backed Preferred Stock affirmed at Baa1 (hyb)

Hancock Holding Company

....Issuer Rating affirmed at Baa3 Stable

....Subordinate Regular Bond/Debenture affirmed at Baa3

....Senior Unsecured Shelf affirmed at (P)Baa3

....Subordinate Shelf affirmed at (P)Baa3

....Preferred Shelf affirmed at (P)Ba1

....Preferred shelf Non-cumulative affirmed at (P)Ba2

....Outlook, Remains Stable

Whitney Bank

.... Baseline Credit Assessment affirmed at baa2

.... Adjusted Baseline Credit Assessment affirmed at baa2

.... Long-term and short-term Counterparty Risk Assessments affirmed at Baa1(cr)/P-2(cr)

.... Long-term and short-term Deposit Ratings affirmed at A3 Stable/P-2

.... Issuer Rating affirmed at Baa3

.... Outlook, Remains Stable

Whitney National Bank

....Backed Subordinate Regular Bond/Debenture affirmed at Baa3

Texas Capital Bancshares, Inc.

....Issuer Rating affirmed at Baa3, Stable

....Subordinate Regular Bond/Debenture affirmed at Baa3

....Pref. Stock Non-cumulative affirmed at Ba2 (hyb)

....Outlook, Changed To Stable From Negative

Texas Capital Bank, National Association

.... Baseline Credit Assessment affirmed at baa2

.... Adjusted Baseline Credit Assessment affirmed at baa2

.... Long-term and short-term Counterparty Risk Assessments affirmed at Baa1(cr)/P-2(cr)

.... Long-term and short-term Deposit Ratings affirmed at A3, Stable/P-2

.... Subordinate Regular Bond/Debenture affirmed at Baa3

....Outlook, Changed To Stable From Negative

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Megan Snyder
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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