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Rating Action:

Moody's concludes rating reviews on four US regional banks with energy concentrations

13 Apr 2016

Moody's downgrades Hancock by two notches, BOK and Cullen/Frost by one notch and confirms Texas Capital's ratings

New York, April 13, 2016 -- Moody's Investors Service has concluded its rating reviews for downgrade on four US regional banking groups with comparatively high energy-lending concentrations. Those banking groups include Hancock Holding Company (Hancock), BOK Financial Corporation (BOK), Cullen/Frost Bankers, Inc. (Cullen/Frost) and Texas Capital Bancshares, Inc. (Texas Capital).

For Hancock's lead bank, Whitney Bank, Moody's downgraded the long- and short-term bank deposit ratings to A3/Prime-2 from A1/Prime-1, the issuer rating to Baa3 from Baa1, and the long-and short-term Counterparty Risk (CR) Assessments to Baa1(cr)/Prime-2(cr) from A2(cr)/Prime-1(cr). These actions were a result of Moody's downgrade of the bank's standalone baseline credit assessment (BCA) to baa2 from a3 (adjusted BCA to baa2 from a3). For the holding company and its subsidiaries, Moody's downgraded all the long-term debt ratings by two notches (issuer rating to Baa3 from Baa1). Following the downgrades, the outlook on Hancock's ratings is stable.

For BOK's lead bank, BOKF, NA, Moody's downgraded the long-term bank deposit rating to Aa3 from Aa2, the issuer and subordinate ratings to A3 from A2 and the long-term CR Assessment to A1(cr) from Aa3(cr). These actions were a result of Moody's downgrade of the bank's standalone BCA to a2 from a1 (adjusted BCA to a2 from a1). The bank's short-term deposit rating and short-term CR Assessment were affirmed at Prime-1 and Prime-1(cr), respectively. For the holding company, Moody's downgraded the issuer rating to A3 from A2. Following the downgrades, the outlook on BOK's ratings is stable.

For Cullen/Frost's lead bank, Frost Bank, Moody's downgraded the long-term bank deposit rating to Aa3 from Aa2, the issuer rating to A3 from A2, and the long-term CR Assessment to A1(cr) from Aa3(cr). These actions were a result of Moody's downgrade of the bank's standalone BCA to a2 from a1 (adjusted BCA to a2 from a1). The bank's short-term deposit rating and short-term CR Assessment were affirmed at Prime-1 and Prime-1(cr), respectively. For the holding company and its subsidiaries, Moody's downgraded all the long-term ratings by one notch (issuer rating to A3 from A2). Following the downgrades, the outlook on Cullen/Frost's ratings is stable.

Moody's confirmed the long- and short-term ratings and assessments of Texas Capital and its lead bank, Texas Capital Bank, National Association. The lead bank is rated A3/Prime-2 for long- and short-term bank deposits and Baa3 for subordinate debt. Its standalone BCA is baa2 (adjusted BCA baa2) and its long- and short-term CR Assessments are Baa1(cr)/Prime-2(cr). The holding company's issuer and subordinate debt ratings are Baa3, and its non-cumulative preferred stock rating is Ba2(hyb). Following the confirmations, the outlook on Texas Capital's ratings is negative.

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

RATINGS RATIONALE

Moody's said the rating reviews for downgrade considered three broad factors. First, these banks hold comparatively large energy-related loan exposures when compared to their tangible common equity (TCE). Second, the prolonged period of low oil prices and Moody's expectation that prices will remain low for an extended period undermine the quality of the banks' energy-related loans. Third, to various degrees, these banks operate in regional economies where the energy sector contributes more to the local economy than the national average, exposing the banks to deterioration in their non-energy loan portfolios.

Regarding Hancock, Moody's said the two-notch downgrade was driven by the weakening in the bank's credit profile as a result of its comparatively large energy concentration, but more specifically its more sizable exposure to the riskier oilfield services subsector. Hancock's energy portfolio accounted for about 90% of TCE at year-end 2015. As result of its exposure and loan mix, Moody's has comparatively higher loss assumptions for Hancock in its stress test than the other energy-concentrated banks. Moody's stress test also incorporates the potential spill-over effect of the energy sector problems on non-energy loan portfolios. About 40% of Hancock's non-energy portfolio is in Louisiana and Texas, two states that have above-average exposure to the energy sector.

Regarding BOK, Moody's said the one-notch downgrade was driven by the weakening in the bank's credit profile as a result of its comparatively large energy concentration. BOK's energy portfolio accounted for about 110% of TCE at year end, but its exposure is predominantly to the exploration and production (E&P) subsector. Moody's has lower loss-given-default assumptions for E&P loans and, as a result, has comparatively lower loss assumptions in its stress test for BOK. Nonetheless, continued deterioration in BOK's energy portfolio weakens its credit profile. In addition, BOK has significant operations in states that have above-average exposure to the energy sector, including Oklahoma and Texas.

Regarding Cullen/Frost, Moody's said the one-notch downgrade was driven by the weakening in the bank's credit profile as a result of its comparatively large energy concentration. Cullen/Frost's energy portfolio accounted for about 90% of TCE at year end, but, like BOK, its exposure is predominantly to the E&P subsector where loss severity is lower than other energy subsectors. Nonetheless, continued deterioration in Cullen/Frost's energy portfolio weakens its credit profile. In addition, Cullen/Frost primarily operates in Texas, which has an above-average exposure to the energy sector.

Regarding Texas Capital, the rating confirmation reflects Moody's view that Texas Capital's current credit standing is resilient to the weak energy sector. The bank's resilience is due to modestly lower direct exposure at roughly 85% of TCE, and comparatively lower indirect exposure given the size of its national businesses outside of Texas. The confirmation also incorporates Texas Capital's flexibility to support its capital if Moody's stress losses materialized. Moody's cited the absence of a common dividend and its ability to improve its regulatory capital ratios by reducing its mortgage warehouse portfolio by selling participations. Nonetheless, the negative outlook on Texas Capital's ratings reflect the ongoing stress in the US energy sector and the bank's comparatively weaker capital position.

Moody's said the stable rating outlooks on the three banking groups, Hancock, BOK and Cullen/Frost, reflect that at their respective current rating levels, the banks' capital positions are sufficiently resilient to absorb Moody's stress losses. The banks' balance sheets are further supported by their strong liquidity profiles, which are anchored by their large holdings of core deposits.

What Could Change the Ratings

For Hancock, downward movement in the BCA could emerge if higher-than-expected losses result in a meaningful erosion of capital ratios. Given the recent downgrade, there is limited upward rating pressure at this time. Nonetheless, a sustained increase in oil prices would be credit positive.

For BOK, downward movement in the BCA could emerge if higher-than-expected losses result in a meaningful erosion of capital ratios. Given the recent downgrade, there is limited upward rating pressure at this time. Nonetheless, a sustained increase in oil prices would be credit positive.

For Cullen/Frost, downward movement in the BCA could emerge if higher-than-expected losses result in a meaningful erosion of capital ratios. Downward pressure could also emerge if Texas had an energy-driven recession undermining the bank's total loan portfolio. Given the recent downgrade, there is limited upward rating pressure at this time. Nonetheless, a sustained increase in oil prices would be credit positive.

For Texas Capital, downward movement in the BCA could emerge if losses result in a decline in its capital ratios. Downward pressure could also emerge if there was evidence of a relaxation in controls over the bank's commercial real estate and/or national lending businesses. Given the negative outlook, there is limited upward rating pressure at this time. Nonetheless, a sustained increase in oil prices would be credit positive.

List of Affected Ratings:

Issuer: Hancock Holding Company

.. Downgrades:

....Issuer Rating, Downgraded to Baa3 from Baa1

....Subordinate Regular Bond/Debenture, Downgraded to Baa3 from Baa1

....Senior Unsecured Shelf, Downgraded to (P)Baa3 from (P)Baa1

....Subordinate Shelf, Downgraded to (P)Baa3 from (P)Baa1

....Preferred Shelf, Downgraded to (P)Ba1from (P)Baa2

....Non-cumulative Preferred Shelf, Downgraded to (P)Ba2 from (P)Baa3

.. Outlook Actions:

....Outlook, Changed To Stable from Rating On Review For Downgrade

Issuer: Whitney Bank

.. Downgrades:

....Baseline Credit Assessment, Downgraded to baa2 from a3

....Adjusted Baseline Credit Assessment, Downgraded baa2 from a3

....Long-Term Counterparty Risk Assessment, Downgraded Baa1(cr) from A2(cr)

....Short-Term Counterparty Risk Assessment, Downgraded to P-2(cr) from P-1(cr)

....Long-Term Bank Deposit Rating, Downgraded A3 from A1

....Short-Term Bank Deposit Rating, Downgraded to P-2 from P-1

....Issuer Rating, Downgraded to Baa3 from Baa1

.. Outlook Actions:

....Outlook, Changed To Stable from Rating On Review For Downgrade

Issuer: Whitney National Bank

.. Downgrades:

....Backed Subordinate Regular Bond/Debenture, Downgraded to Baa3 from Baa1

Issuer: BOK Financial Corporation

..Downgrades:

....Issuer Rating, Downgraded to A3 from A2

..Outlook Actions:

....Outlook, Changed to Stable from Rating On Review For Downgrade

Issuer: BOKF, NA

..Downgrades:

....Baseline Credit Assessment, Downgraded to a2 from a1

....Adjusted Baseline Credit Assessment, Downgraded to a2 from a1

....Long-Term Counterparty Risk Assessment, Downgraded to A1(cr) from Aa3(cr)

....Long-Term Bank Deposit Rating, Downgraded to Aa3 from Aa2

....Issuer Rating, Downgraded to A3 from A2

....Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

..Affirmations:

....Short-Term Counterparty Risk Assessment, Affirmed P-1(cr)

....Short-Term Bank Deposit Rating, Affirmed P-1

..Outlook Actions:

....Outlook, Changed to Stable from Rating On Review For Downgrade

Issuer: Cullen/Frost Bankers, Inc.

.. Downgrades:

....Issuer Rating, Downgraded to A3 from A2

....Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

....Non-cumulative Preferred Stock, Downgraded to Baa2 (hyb) from Baa1 (hyb)

.. Outlook Actions:

....Outlook, Changed To Stable from Rating On Review For Downgrade

Issuer: Frost Bank

.. Downgrades:

....Baseline Credit Assessment, Downgraded a2 from a1

....Adjusted Baseline Credit Assessment, Downgraded to a2 from a1

....Long-Term Counterparty Risk Assessment, Downgraded to A1(cr) from Aa3(cr)

....Long-Term Bank Deposit Rating, Downgraded to Aa3 from Aa2

....Issuer Rating, Downgraded to A3 from A2

.. Outlook Actions:

....Outlook, Changed To Stable from Rating On Review For Downgrade

..Affirmations:

....Counterparty Risk Assessment, Affirmed P-1(cr)

....Short-Term Deposit Rating, Affirmed P-1

Issuer: Cullen/Frost Capital Trust II

.. Downgrades:

....Backed Preferred Stock, Downgraded to Baa1 (hyb) from A3 (hyb)

Issuer: Texas Capital Bancshares, Inc.

..Confirmed:

....Issuer Rating, Confirmed at Baa3

....Subordinate Regular Bond/Debenture, Confirmed at Baa3

....Non-cumulative Preferred Stock, Confirmed at Ba2 (hyb)

.. Outlook Actions:

....Outlook, Changed To Negative from Rating On Review For Downgrade

Issuer: Texas Capital Bank, National Association

..Confirmed:

....Baseline Credit Assessment, Confirmed at baa2

....Adjusted Baseline Credit Assessment, Confirmed at baa2

....Long-Term Counterparty Risk Assessment, Confirmed at Baa1(cr)

....Long-Term Bank Deposit Rating, Confirmed at A3

....Subordinate Regular Bond/Debenture, Confirmed at Baa3

.. Outlook Actions:

....Outlook, Changed To Negative from Rating On Review For Downgrade

..Affirmations:

....Short-Term Counterparty Risk Assessment, Affirmed P-2(cr)

....Short-Term Bank Deposit Rating, Affirmed P-2

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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

Moody's concludes rating reviews on four US regional banks with energy concentrations
No Related Data.
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