p1a3cb2u211kqj1e6h7021gn1h6i6.jpg
As oil and gas prices keep sliding, banks with large energy loan books are doing what they can to manage ever-increasing risk. It's not just about reducing exposure; many are also working closely with oil, gas and other energy clients to help them raise capital or boost cash flow. Here's a sampling what bankers said on third-quarter earnings calls about the state of their energy books and what, in some cases, they are doing to prevent clients from defaulting on their loans.
p1a3ctrh055f6v37f4e37j13ro6.jpg

Texas Capital: Hands-On Approach

Keith Cargill, president and CEO of Texas Capital Bancshares in Dallas, said the next few quarters will "be interesting" as the bank works with borrowers to sell assets or bring in new equity to increase cash inflows and reduce debt. Bankers are also looking at ways to help borrowers add collateral.

Still, nonperforming assets nearly tripled in the third quarter from a year earlier, to $110 million. Net chargeoffs quadrupled, and the loan-loss provision more than doubled. The loan-loss allowance is now 36% higher than it was a year earlier.

p1a3cb2u211jav9op1nb0kl0kd28.jpg

Prosperity Bancshares: Watching and Waiting

"Most of our energy credits seem to be holding their own," said David Zalman, CEO of Prosperity Bancshares in Houston, adding that there are "very few delinquencies" from energy-related service loans. Executives said clients either have the liquidity to pay down loans, or enough free and clear assets to pledge, to comply with the bank's borrowing policies.

Overall NPAs in the third quarter fell from a year earlier, to $49 million, with energy credits accounting for about 43% of the total. The allowance is only up 4% from a year earlier.

p1a3cb2u229n3kpd1evo1cqk33e9.jpg

Zions Bancorp.: Choppy Future

Zions Bancorp. expects eventual energy losses to be "very manageable," ranging from $75 million to $125 million, President Scott McLean said. The Salt Lake City company expects "some further chargeoffs" in the energy sector, CFO Paul Burdiss added, but chargeoffs levels could be "somewhat lumpy" since such loans tend to be large.

Zions' criticized energy assets in the third quarter rose by roughly $65 million from June 30, while classified energy loans increased by more than $110 million. "The only countervailing influence to all the positive things [at Zions] is energy," McLean said.

p1a3cb2u221egq1gloghk1lv2sgra.jpg

LegacyTexas: Growing the Portfolio

LegacyTexas in Plano recorded $31 million in new nonperforming energy loans in the third quarter, but CEO Kevin Hanigan said the rise was tied to a "big deal" that management had been tracking for almost a year. "When OPEC elected not to cut production, we knew this would be the deal we would have the most problems with," he said.

Unlike other Texas banks, LegacyTexas increased the size of its energy book. Those loans are essentially private banking deals "with wealthy people behind them" and secured by reserves, Hanigan said. NPAs nearly tripled from a year earlier; the allowance is up 60%.

p1a3cb2u22i06gce1n14h02132fb.jpg

BOK Financial: Fortifying its Defenses

Energy clients are doing "the things they need to repay those debts, such as raise capital, sell assets or refinance elsewhere," said Stacy Kymes, an executive who handles corporate banking at BOK Financial in Tulsa, Okla. He said about 7% of the company's energy loans are considered criticized, up from 4% at June 30.

NPAs are down from a year earlier, but BOK Financial has been charging off loans — compared to recoveries in 2014 — and the allowance has increased by 9% in the last year.

p1a3cb2u2211kc1fisidfbdp1i46c.jpg

Hancock Holding: Remaining Optimistic

"We believe nearly all … of our energy services customers will successfully manage through the current cycle," John Hairston, Hancock Holding's CEO said. The company has a single $750,000 loss in its energy book. "That said, a pervasive energy cycle through 2016 would likely create some credit losses, but we do not expect them to be significant," he said.

NPAs at the Gulfport, Miss., lender rose 40% from a year earlier, while the allowance was 11% higher. Provision expense was up slightly from the third quarter of 2014.

p1a3cb2u22tcqljfu8n1lbs10dld.jpg

Industry Outlook: More Trouble Ahead

Industry Outlook: More Trouble AheadTEXT: Bankers have their work cut out for them, as oil prices remain stagnant heading into the end of the year. West Texas Intermediate (WTI) crude prices fell below $45 per barrel last month, marking the lowest level since the end of 2003.
MORE FROM AMERICAN BANKER