11 Images Total
Bank executives have faced relentless questions about their energy-sector exposure during fourth-quarter earnings calls this month, as oil has bobbed above and below $30 a barrel. They are taking more drastic actions to contain losses, but it still might not be enough.
The bad news started in mid-December, when Hancock Holding in Gulfport, Miss., increased its loan-loss allowance for energy credits, followed later by Associated Banc-Corp in Green Bay, Wis., and BOK Financial in Tulsa, Okla.
Zions in Salt Lake City, led by Harris Simmons, projected losses on energy loans this year of between $75 million and $100 million, and it raised its energy loan-loss reserve to more than 5% of total balances. Zions has significant exposure to the riskier oilfield services segment, with about $350 million of classified loans in the category in the fourth quarter.
The holding company for Bank of Oklahoma warned on Jan. 13 that it would increase its loan-loss provision to $22.5 million after an energy borrower's loan had become impaired. "It was a disappointing finish to the year [due to the] downgrade of a single large borrower in our energy portfolio," CEO Steven Bradshaw said when it reported quarterly results two weeks later.
The San Antonio company warned on Jan. 20 that its loan-loss provision would jump to $34 million, up from $6.8 million in the previous quarter, because of problems in the energy sector. "The oil downturn has lasted longer than expected," Chairman and CEO Dick Evans, who will retire in March, said on Jan. 27.
Texas Capital Bancshares
Texas Capital in Dallas posted fourth-quarter energy reserves of 3% of its total $1.2 billion energy loan book. That is less than the 5% reserves that some analysts prefer and Texas Capital CEO Keith Cargill was pressed to explain himself. "We feel like it's quite adequate," Cargill said. "This is not something where we're taking our best guess."
The Stillwater, Okla., company is prepared to restructure loans or extend terms, if cash flow at its energy clients continues to deteriorate, Southwest CEO Mark Funke said during its conference call. "At the current price curve some of our customers would need to make additional principal payments or pledge additional collateral," Funke said.
LegacyTexas Financial Group
The Plano, Texas, company's allowance for loan losses soared 84% to $47 million, and its loan-loss provision rose more than fourfold to $11 million, because of energy loans. Energy-sector loans make up about 8% of its portfolio of loans held for investment.
Bank of Hawaii
Cheap oil is not bad news for every bank. Hawaii imports about 80% of its energy needs and between 70% of 80% of that imported energy is oil. "Hawaii is the most oil-dependent state so lower prices have definitely had a positive impact on the islands and on the economy," Bank of Hawaii Chairman and CEO Peter Ho said in a conference call.
The Houston lowered its loan-loss provision to $500,000 in the fourth quarter from $6.4 million a year earlier. That was partly because energy loans fell to 4.2% of total loans from 5.4%. CEO David Zalman noted during a conference call Jan. 26 that Prosperity was criticized last year for being over-reserved. "We don't want to be knee-jerked from one [extreme] to another," he said.
More to Come
But few banks will probably be criticized of over-reserving this year. Observers will be closely examining in coming days what's said by other banks with big energy exposure, including MidSouth Bancorp in Lafayette, La.; Green Bancorp in Houston; and Independent Bank Group in McKinney, Texas. All three companies had reserves of less than 5% of total energy loans as of Sept. 30, a concern to investors.