Live Webcast and Q&A August 10, 2016 Copyright 2016 by S&P Global. All rights reserved.

Transcription

1 U.S. Banking Sector: Searching For The Road Forward Live Webcast and Q&A August 10, 2016 Copyright 2016 by S&P Global. All rights reserved.

2 Our 2016 outlook for U.S. banks Revenue Expect revenues to remain essentially flat, as strong loan growth is offset by weaker fee income (particularly in capital markets and wealth management) and fewer Fed rate hikes than previously anticipated. Expenses Expect slightly positive operating leverage. Lower expenses as a result of cost rationalization and lower litigation-related costs should offer some reprieve for the larger banks. Profitability Core profitability could come under pressure due to revenue headwinds and higher credit provisions. However, we expect profitability to be roughly flat, assuming some rebound in capital markets and moderate growth in net interest income. Credit Quality Capital Expect asset quality deterioration will accelerate in 2016, leading to continued reserve build (from reserve releases in 2015). Specific areas of potential risk include: energy, leveraged loans, autos and some pockets of CRE. Capital to remain near or at current levels as banks have reached levels higher than their required regulatory minimums. We expect dividends and buybacks to increase given the favorable CCAR 16 results. Funding & Liquidity Most banks are largely asset sensitive. Funding mix could change if interest rates rise and deposit growth abates. We will monitor the outflows of noninterest-bearing deposits and the pace of funding repricing with an eye on deposit betas. Source: S&P Global Ratings 2

3 Year-to-date bank rating actions Company To From Key Driver of Rating/Outlook Action Barclays Capital Inc. A-/Negative A-/Stable Group outlooks revised to negative due to potential economic deterioration following HSBC USA Inc. A/Negative A/Stable Brexit vote Deutsche Bank Trust Corporation BBB+/Negative BBB+/Stable Royal Bank of Canada AA-/Negative AA-/Stable Group outlook revised to negative as operating conditions may challenge strategy execution Group outlook revised to negative on higher risk appetite, including growth in U.S. wholesale loans and leveraged loans BancorpSouth, Inc. BBB-/Positive BBB-/Stable Outlook revised to positive upon a decrease in compliance issues and regulatory risk Bank of North Dakota A+/Stable AA-/Stable BBVA Compass Bancshares Inc. BBB+/Negative BBB+ /Stable BOK Financial Corp. BBB+/Negative A-/Negative Comerica Inc. BBB+/Negative A-/Negative Cullen/Frost Bankers Inc. A-/Negative A/Negative Texas Capital BancShares Inc. BB+/Negative BBB-/Negative Huntington Bancshares Inc. BBB/Stable BBB/Positive FirstMerit Corp. BBB+ /Watch Negative BBB+ /Stable First Republic Bank A-/Stable A-/Negative Largely reflecting considerable exposure to oil & gas and the potential for increased criticized loan balances and heightened provisions from prolonged period of lower oil prices Outlook changes reflecting merger of Huntington with FirstMerit Stable outlook reflects consistently well-executed strategy, stable operating results and strong risk-adjusted capitalization. Trustmark Corporation BBB+/Negative BBB+/Stable Outlook revised to negative following increase in construction loans Popular, Inc. B+/Positive B+/Negative OFG Bancorp B/Stable B/Negative FirstBank Puerto Rico. B+/Stable B+/Negative Improvements on risk adjusted capitalization and funding profiles Webster Financial Corp. BBB+/Stable BBB/Positive Rating raised on improved performance and business stability Source: S&P Global Ratings 3

4 Q2 Results 4

5 Revenue up from Q1, but still lower Y/Y for large banks 20.0% Total Revenue Growth Y-o-Y Q2 Results (y/y) 15.0% 10.0% 5.0% 0.0% Trust Banks: -1% Regional Banks: 5% -5.0% -10.0% -15.0% -20.0% -25.0% Money Center Banks: -4% Broker Dealers: -9% -30.0% -35.0% 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 Money Center Broker Dealers Trust Banks Regionals Prolonged low rates will likely weigh on revenue for all banks Revenue from capital markets while difficult to forecast was not especially strong in 2H 2015, making comparisons somewhat easier for the money center banks and broker-dealers in the second half of this year Source: S&P Global Ratings C, BAC, JPM, GS, MS adjusted for DVA 5

6 Rise in FICC boosts capital markets revenue Y-o-Y Change in Capital Markets Revenues 40% 30% 20% 10% 0% -10% -20% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16-30% FICC Equity Investment Banking Total Capital Markets Revenue Volatility and volumes, difficult to predict, will determine overall capital markets revenue. Some banks may also pick up market share as peers retrench in areas like FICC Source: S&P Global Ratings; Company Reports Group Includes BAC, C, GS, JPM, MS 6

7 % NIMs roughly flat to modestly down Median Rated Bank NIM Regionals Money Center Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 ' Yields & Costs for Regional Banks Yields & Costs for Money Center Banks Loans Total Earning Assets Deposits 2015Q2 2016Q1 2016Q Total Interest Bearing Liabilities Loans Total Earning Assets Deposits Total Interest Bearing Liabilities 2015Q2 2016Q1 2016Q2 Source: S&P Global Ratings; Press Releases; Call Reports All numbers exclude GS & MS Median NIM reflects premium amortization adjustments for BAC 7

8 % Rising provisions likely to weigh further on earnings $ billions Reserves and Provision Growth Profit Margins % % % % % Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16-15% Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Median Reserves to Loans (%) Loan Loss Provisions ($ billions, right scale) Median PTPP Margin Median Pretax Margin Provisions are likely to rise further from cyclical lows, perhaps placing additional pressure on banks to reduce expenses Source: S&P Global Ratings All rated banks, excludes MS & GS 8

9 Focus remains on containing operational costs Median Efficiency Ratio For Rated Banks Q1 '16 Q2 '16 Regional Banks Money Center Banks We expect positive operating leverage in 2016, driven by a continued rationalization of operating costs and assuming an absence of high litigation-related costs Source: S&P Global Ratings 9

10 Focusing on cost containment amid challenging revenue conditions 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Median Revenue / Avg. Assets Money Center Banks Broker Dealers Regional Banks Median Net Interest Income / Avg. Assets Money Center Banks Broker Dealers Regional Banks We expect banks to continue consolidating branches and looking for ways to use technology to lower expenses 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Q % 1.5% 1.0% 0.5% 0.0% Median Noninterest Expenses / Avg. Assets Money Center Banks Broker Dealers Regional Banks Median Salary & Benefits / Avg. Assets Money Center Banks Broker Dealers Regional Banks Source: S&P Global Ratings 10

11 C&I, CRE, and residential mortgage drive loan growth 30% 25% 20% 15% 10% 5% 0% -5% -10% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Regional Banks Cumulative Loan Growth (%) 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 Money Center Banks Cumulative Loan Growth (%) 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 Q/Q Growth: Construction: 3% Commercial Mortgage: 3% Multifamily: 6% Commercial Mortgage: -1% Construction: 1% Multifamily: 3% Auto: 2% C&I: 2% First Mortgage: 2% Credit Cards: 5% Home Equity: -3% Total: 2% We believe some banks may temper their C&I, CRE, and auto lending growth but perhaps increase areas like card lending and residential mortgage C&I: 0% Auto: 2% First Mortgage: 2% Credit Cards: 1% Home Equity: -1% Total: 2% Source: S&P Global Ratings; Regulatory Filings Aggregated numbers 11

12 Asset Quality 12

13 Asset quality will likely deteriorate further 2.0% Non Accruals and NCOs to Total Loans 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 NonAccruals/ Total Loans (Gross) Annualized Net Charge-offs/ Avg Loans (Gross) After a meaningful rise in Q1, nonaccruals appeared relatively little changed overall. Still, we expect further increase in problem loans and charge-offs from what have been very benign conditions Source: S&P Global Ratings All rated banks, excludes GS & MS 13

14 Reserve building likely to continue as criticized loans increase Reserve Releases/Pre-tax Profit Aggregate Criticized Loans / Total Loans 60% 9% 50% 40% 30% 8% 7% 6% 5% 20% 4% 10% 3% 2% 0% 1% -10% Q2 '16 0% Q2 '16 Money Center Regional Banks We expect a net reserve build for the sector in 2016 with provisions outpacing NCOs at most banks Source: S&P Global Ratings All rated banks (wherever data available); excludes GS & MS 14

15 Net charge-offs still below historical levels Loan Category Construction and Development Loans -0.02% 0.03% 0.14% -0.16% 8.02% Real Estate Loans Secured by 1-4 Family Residential Properties 0.05% -0.03% 0.15% -0.10% 2.47% Home Equity Lines of Credit 0.32% -0.08% 0.23% 0.09% 3.13% Real Estate Loans Secured by Nonfarm Nonresidential Properties 0.02% 0.02% 0.12% -0.10% 1.40% Commercial & Industrial Loans 0.44% 0.05% 0.52% -0.08% 2.72% Credit Cards 3.04% -0.15% 4.39% -1.35% 13.21% Other Loans to Individuals 0.64% -0.13% 1.08% -0.44% 3.04% Auto loans 0.51% -0.17% 0.54% -0.03% 0.74% Total Loans & Leases 0.42% -0.03% 0.60% -0.18% 3.00% Note: Q2 and Q1 NCO s sourced from call reports, while LT Medians and Historical Peaks come from FDIC data, which is only current as of Q Auto loan data is available only from Q Sources: S&P Global Ratings; SNL Financial, and the FDIC. 15

16 Capital, Funding, And Liquidity 16

17 Average Risk Adjusted Capital Ratio Common Dividend Payout Ratio Capital levels will likely stabilize around current levels 11.0% S&P Global Risk Adjusted Capital Ratios 40.0% 10.0% 35.0% 30.0% 9.0% 25.0% 8.0% 20.0% 7.0% 15.0% 10.0% 6.0% 5.0% 5.0% % Money Center Bank Simple Avg. Regional Bank Simple Avg. Median Common Dividend payout Ratio (Right Scale) Source: S&P Global Ratings Based on est. Q415 RACs. All rated banks, excludes GS, MS, Trust Banks 17

18 Payouts should rise in the aftermath of CCAR Ally Financial Inc. 1, American Express Co. 5, , Bank of America Corp. 14, , Bank of New York Mellon Corp. 3, , BB&T Corp. 2, BBVA Compass Bancshares Inc. 490 NM 25 NA NA NA Capital One Financial Corp. 3, , Citigroup Inc. 13, , Citizens Financial Group Inc Comerica Inc Discover Financial Services Inc. 2, , Fifth Third Bancorp 1, The Goldman Sachs Group Inc.** 6,215 NA NA NA NA NA Huntington Bancshares Inc JPMorgan Chase & Co. 20, , KeyCorp M&T Bank Corp. 1, , Morgan Stanley 4, , Northern Trust Corp PNC Financial Services Group 3, , Regions Financial Corp. 1, State Street Corp. 1, , SunTrust Banks Inc. 1, U.S. Bancorp 5, , Wells Fargo & Co.** 20, NA NA NA Zions Bancorporation Average NM NM 29 NM Median NM NM 31 NM *Details of foreign bank subsidiaries capital plans are not provided and are excluded from our analysis. Expected dividends over the next 12 months based on the CCAR approved rate and company-specific guidance regarding timing of increases. Calculation assumes dividends based on current diluted weighted average shares outstanding at time of publishing. Dividend payout ratio calculated as expected dividends over the next 12 months to 2016 consensus earnings estimates from Bloomberg, except BBVA, for which 2015 actual net income is used. Full proposed share repurchase that can be authorized through the second half of 2017 applied as a percent of 2016 consensus earnings estimates from Bloomberg. **Goldman did not disclose its share repurchase and dividend increase plans while Wells Fargo did not disclose its share repurchase plans. Our estimate though is likely on the conservative side (meaning a higher percentage of net income) because we are assuming the banks will use the full extent of their approved repurchases, and we are using 2016 projected net income instead of a four-quarter run rate starting in the second half of

19 All eight U.S. GSIBs are above their required regulatory minimums Company --Tier 1 Common Equity Ratio Basel III Fully Phased-in-- Q216 QoQ Change (in bps) Approach US Fed GSIB Surcharge (Method 2) Basel III Minimum* Current Surplus (deficit) from fully phased in Basel III CET1 Requirement* CCAR projected minimum in severely adverse scenario** Bank of America 10.50% 40 A 3.0% 10.0% 0.50% 7.1% Citigroup 12.50% 20 A 3.0% 10.0% 2.50% 7.7% JPMorgan Chase 11.90% 20 A 3.5% 10.5% 1.40% 6.8% Wells Fargo 10.60% 0 S 2.0% 9.0% 1.60% 6.1% Morgan Stanley 15.70% 110 A 3.0% 10.0% 5.70% 7.7% Goldman Sachs 11.80% 10 A 2.5% 9.5% 2.30% 7.6% Bank of New York Mellon 9.50% -30 A 1% 8.0% 1.50% 8.4% State Street 11.50% -30 S 1.5% 8.5% 3.00% 6.6% *Including the Fed GSIB surcharge; A: Advanced Approach, S: Standardized Approach **Source: Federal Reserve 2016 Comprehensive Capital Analysis and Review (CCAR). Projected minimum ratio incorporates banks planned capital actions The Fed G-SIB surcharges (which are higher than the global averages) are being phased-in beginning January 2016 Though U.S. GSIB s continued to work towards reducing size, complexity and interconnectedness (lower L3 assets, OTC notionals and non-operational deposits), we believe it would be difficult to further reduce the GSIB buffers Source: S&P Global Ratings; Company Filings 19

20 Consolidated supplementary leverage ratios meet minimum thresholds Company Holdco. Supplementary Leverage Ratio (%) Q2'16 Q1'16 Double Leverage Ratio (%) Q1' Bank of America Corp Citigroup Inc JPMorgan Chase & Co Wells Fargo & Co Goldman Sachs Group Inc Morgan Stanley Bank of New York Mellon Corp State Street Corp Based on the banks estimated supplementary leverage ratio rules (fully-phased in basis) Source: S&P Global Ratings; Company Filings 20

21 Funding & liquidity metrics remain at improved levels Stable Funding Ratio 250.0% 200.0% 150.0% 100.0% 50.0% 2012A 2013A 2014A 2015A 2016Q1 0.0% Regional Money Center Broker-Dealer Trust Broad Liquid Assets to Short-term Wholesale Funding 8.0x 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x Regional Money Center Broker-Dealer Trust 2012A 2013A 2014A 2015A 2016Q1 Source: S&P Global Ratings; Funding & liquidity ratios derived by aggregating the numerators and denominators of the banks in each peer group 21

22 Banks could become less asset sensitive Banks Scenarios Large Banks Interest Rate Sensitivity Change in net interest income due to 100- basis-point parallel rise in rates across the yield curve (%) Q216 Q116 LTM Q216 Net interest income/reven ues (%) Non interest Bearing deposits/tot al deposits (%) Bank of America Corp. Instantaneous 19.8% 15.3% 47% 36% Citigroup Inc. Instantaneous 4.2% 4.1% 64% 31% Wells Fargo & Co. 1 Varying, over 24 months nd nd 53% 12% U.S. Bancorp 2 Instantaneous 2.2% 2.1% 55% 23% PNC Financial Services Group Gradual, over 12 months 3.1% 2.7% 55% 31% JPMorgan Chase & Co. Instantaneous 6.7% 7.0% 48% 31% Capital One Instantaneous 1.9% 1.5% 81% 28% BB&T Corp Gradual, over 12 months 2.4% 1.6% 60% 27% SunTrust Instantaneous 2.3% 3.0% 61% 29% Source: Company filings. N.D.--Not disclosed. Sensitivity derived by taking the impact of the interest rate change divided by LTM 2Q16 net interest income. 1) Wells Fargo discloses the impact of varying degrees of rising short-term (up 25 bps) and long-term interest rates (up 50 bps) on its net income over a 24 month horizon. All other banks report impact on their net interest income. 2) For U.S. Bancorp, the impact of parallel rise indicates a 50-basis-point parallel shift in the yield curve compared with 100 basis point for all other banks. Most banks remain asset sensitive by their own measure, but we believe these assumptions reflect divergent deposit beta assumptions We saw relatively low impact of the rise in rates on deposit outflows or pricing in the first half of this year S&P in-house economists expect the Fed to only raise rates once this year We continue to surveil for rise in duration, higher deposit sensitivity, and high reliance on more costly wholesale funding Source: S&P Global Ratings 22

23 S&P Additional Loss Absorbing Capacity (ALAC) 23

24 Estimated ALAC - U.S. banks 10.0% U.S. G-SIB Est. S&P Global Ratings Additional Loss Absorbing Capacity (ALAC) 9.0% 8.0% 7.0% 2 ALAC Notches 6.0% 5.0% 4.0% 1 ALAC Notch 3.0% 2.0% 1.0% 0.0% Bank of America Corp. Bank of New York Mellon Corp. Citigroup Inc. Goldman Sachs Group Inc. (The) JP Morgan Chase &Co. Morgan Stanley State Street Corp. Wells Fargo & Co. Excess Total Adjusted Capital (TAC) Sub debt Holdco Sr. Debt > 20-year residual maturities Source: Company Filings; Data as of 12/31/2015; Calculations based on Est Q415 S&P RWA; Excludes all senior long-term debt instruments with less than 20-year residual maturities and trust preferred securities We have adjusted our initial thresholds for ALAC by +25 bps for all US GSIBs (except WFC, BK and STT) based on the operating banks ability to maintain flexibility within the group We may continue to adjust these thresholds based on possible issues like large maturities of ALAC within five years, or an increasing amount of ALAC needed to be prepositioned in material subsidiaries Source: S&P Global Ratings, Company Filings Data as of 12/31/2015; * Based on Est Q415 S&P RWA 24

25 Key Credit Concerns 25

26 Market instability remains a key credit concern S&P Global Ratings Composite Credit Spreads Yr Government Bond Yields Investment-grade (bps) Source: S&P Global Fixed Income Research; As of 8/8/2016 Speculative-grade (bps) US Japan Germany Canada France United Kingdom Switzerland Key risks for 2016: The exit process of the United Kingdom from the European Union The divergence of monetary policies globally and further downward pressure on interest rates The slowdown of the Chinese economy Commodity price volatility Geopolitical risks, including turmoil in the Middle East and the ongoing threat posed by terrorism The upcoming U.S. election Source: S&P Global Ratings 26

27 Underwriting standards tightening for CRE but easing for credit cards Percentage of Banks Tightening Standards for CRE Loans Net Stronger Demand for CRE Loans % % Construction and land development Nonfarm nonresidential (CRE) Multifamily Changes in C&I Lending Standards Vs. Loan Demand Construction and land development Nonfarm nonresidential (CRE) Multifamily Changes in Credit Card Lending Standards Vs. Loan Demand -15 Net Tightening in Lending Standards to Large and Midsize Businesses Net Stronger Demand for C&I Loans By Large and Midsize Businesses Net Stronger Demand for Credit Cards Net Tightening in Lending Standards Source: S&P Global Ratings; Federal Reserve Senior Loan Officer Survey July

28 Billions SNC exam reports higher classified credits 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Committed and Outstanding Balances Utilized Exposure Unfunded Exposure Special Mention and Classified to Total Committed (%) Upper: Total Commitments by Lender Type Lower: Classified and Special Mention by Lender Type 25% 20% 15% 10% 5% 0% Total Commitments ($ billion) 45% 34% 22% 4,102 22% 17% 61% US Banking Institutions FBOs Special Mention and Classified ($ billion) 421 Nonbanks ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Source: Office of the Comptroller of Currency; S&P Global 28

29 Increased leverage in speculative grade (X) 29

30 Maturity wall and refinancing risk 30

31 Direct exposures to energy lending remains a concern for a few regional banks Q ($ mil) Regional Banks CFR CMA TCBI 1 BOKF ± HBHC BBVA Comp. ZION RF ASB MUFG Am. Median Rating A-/ Negative BBB+/ Negative BB+/ Negative BBB+/ Negative BBB/ Negative BBB+/ Negative Total Funded Energy Outstanding 1,656 3,097 1,100 3,029 1,633 4,151 2,643 2, ,536 Energy as % of Loans 14.4% 6.3% 6.4% 18.9% 10.2% 6.7% 6.4% 3.3% 3.9% 4.5% 6.4% Total Energy Undrawn Commitments - 2,476-2,100 2,423 5,149 2,021 2, ,832 Est. Total Energy Outstanding and Commitments - 5,573-5,129 4,056 9,300 4,664 4,829 1,000 10,368 Line Utilization % % 40.3% 44.6% 56.7% 56.2% 75.6% 34.1% 55.9% Energy as % of Tier 1 Capital 76.5% 42.2% 63.3% 106.5% 89.8% 54.4% 40.0% 22.1% 37.4% 27.3% 48.3% Energy Reserves as % of Energy Loans 5.1% ~8.0% 4.7% 3.2% 6.8% ~4.0% 8.1% 8.0% 6.5% 11.1% 6.6% Energy NPAs as % of Energy Loans 6.9% 13.7% 12.8% 5.3% 9.7% 11.3% 10.8% % 15.5% 11.3% Energy Criticized as % of Energy Loans 34.2% 59.2% 20.8% 22.1% 46.6% % 44.2% 29.8% 48.3% 37.5% Est. CRE Exposure in Texas as % of Total Loans - 5.7% - 6.3% - 5.6% 3.5% 2.9% % Source : S&P Global Ratings And Less So For The Large Complex U.S. Banks BBB-/ Stable BBB/ Stable BBB/ Stable A/ Negative Q ($ mil) Money Center Banks JPM C* WFC BAC± Rating A-/ Stable BBB+/ Stable A/ Stable BBB+/ Stable Total Funded Energy Outstanding 15,300 23,700 17,800 21,849 Energy as % of Loans 1.8% 3.8% 1.9% 2.4% Total Energy Undrawn Commitments 32,567 35,600 22,900 21,645 Est. Total Energy Outstanding and Commitments 47,867 59,300 40,700 43,494 Line Utilization 32.0% 40.0% 43.7% 50.2% Energy Reserves as % of Energy Loans 8.8% 4.7% 9.3% 4.6% Source: S&P Global Ratings 1 Energy as a percentage of loans based off of LHI and LHS. Criticized includes all NPAs; Criticized loans includes loans risk graded ± Criticized loans includes potential problem and other loans especially mentioned. *Includes exposures and reserves for ICG and GCB. Includes Oil & Gas and Natural Gas Pipeline Industries. Criticized amount only from Oil & Gas, but against combined loans 31

32 $ billions Auto: Potential weakening in underwriting amid strong price competition Loan Balance by Lender Type Avg New Term by Risk Tier for Q % 30% 25% 20% 15% 10% 1,000 5% (15%) 182 (22%) (16%) 215 (24%) 1, (17%) 249 (25%) 221 (27%) 230 (25%) 244 (24%) 290 (36%) 318 (35%) 343 (34%) 2014 Q Q Q1 Source: Experian Information Solutions, Inc. New Loan New Lease Top 10 Auto-Concentrations (% of Loans) Source: Experian Information Solutions, Inc. Risk tiers denominated by FICO scores. Prime: Nonprime: Subprime: % SAN HBAN COF TCB CFG FITB FMER BMO CBSH Source: SEC Filings; FFIEC Auto Loans as a % of total loans Note: Considered 1Q16 FFIEC data for Santander Holdings USA as the 2Q16 data is not available yet. Only including banks above $20 billion in total assets Finance Credit Union Captive Auto Bank Subprime Nonprime Prime 32

33 Q&A 33

34 Appendix 34

35 DFAST capital burn down without incorporating future shareholder payouts Common Equity Tier 1 capital ratio Tier 1 leverage ratio Morgan Stanley BBB (730) (340) HSBC North America Holdings Inc. NR (660) (380) Citigroup Inc. BBB (610) (330) BMO Financial Corp. A (600) (440) Zions Bancorporation BBB (560) (480) The Goldman Sachs Group Inc. BBB (520) (300) Huntington Bancshares Inc. BBB (480) (380) TD Group US Holdings LLC NR (470) (330) KeyCorp BBB (450) (470) BBVA Compass Bancshares, Inc. BBB (420) (360) M&T Bank Corp. A (420) (400) Deutsche Bank Trust Corp. BBB (400) (170) Wells Fargo & Co. A (390) (280) BancWest Corp. NR (370) (310) JPMorgan Chase & Co. A (370) (230) Regions Financial Corp. BBB (360) (340) Bank of America Corp. BBB (350) (220) MUFG Americas Holdings Corporation A (350) (440) BB&T Corp. A (340) (280) State Street Corp. A (340) (150) Ally Financial Inc. BB (310) (250) Fifth Third Bancorp BBB (300) (270) PNC Financial Services Group A (300) (280) Capital One Financial Corp. BBB (290) (260) Citizens Financial Group, Inc. BBB (290) (270) SunTrust Banks Inc. BBB (250) (230) Comerica Inc. BBB (220) (230) U.S. Bancorp A (210) (190) Discover Financial Services Inc. BBB (200) (160) Northern Trust Corp. A (120) (100) American Express Co. BBB (100) (80) Bank of New York Mellon Corp. A (100) (50) Santander Holdings USA Inc. BBB (20) (160) 33 participating bank holding companies - aggregate N.A (390) (250) 33 participating bank holding companies - average N.A (361) (278) 33 participating bank holding companies - median N.A (350) (280) Note: This burn-down analysis applies to the severely adverse scenario. bps--basis points. N.A.--Not applicable. 35

36 Current U.S. bank holding company ratings distribution 35% HoldCo Ratings Distribution 30% 25% 20% 15% 10% 5% 0% AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- 12/31/2015 8/8/2016 Source: S&P Global Ratings. Includes Puerto Rican banks. As of 08/8/

37 Current bank holding company ratings outlooks Ratings Outlook Distribution 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Money Center Banks 3 Regional Banks Trust Banks 3 Broker Dealers 2 Total HoldCo Ratings Positive Stable Negative Money Center Banks: BAC, C, JPM Broker Dealers: MS, GS Trust Banks: BK, NTRS, STT Source: S&P Global Ratings Includes Puerto Rican banks As of 08/08/

38 F 2017F 2018F Industry profit forecast remains modestly optimistic 40.0% 35.0% USD Bn 30.0% % 20.0% 15.0% 10.0% % % -60 Pretax return on revenues (Left Scale) Core ROR (Left Scale) LLP minus NCOs (Right Scale) Source: S&P Global Ratings; FDIC F = Forecast, E = Estimate 38

39 Upcoming regulatory changes remain relatively manageable NSFR In May regulatory agencies released the much anticipated notice for proposed rule making (NPR) on the NSFR US G-SIBs have to maintain 100% NSFR; Other U.S. banks (those with assets between $50 billion-$250 billion) have to comply with a 70% requirement Regulators cited a $39 billion shortfall for the GSIBs We believe the large-complex banks would be able to fully comply by the Jan 1, 2018 compliance date. We expect regulators to finalize the NSFR rule by end-2016 (without much change from the NPR) Living Wills 2015 resolution plans (or living wills) of BAC, BK, JPM, STT, WFC, MS and GS were determined to be not credible by the regulators. The regulatory agencies identified some shortcoming in Citigroup s 2015 resolution plan but found it to be credible Each firm must remediate its deficiencies by October 1, 2016 DOL Fiduciary Rule On April 6, 2016, the U.S. Department of Labor ( DOL ) issued its final fiduciary rule Investment, rollover and asset management recommendations from broker-dealers, and banks on clients individual retirement accounts ( IRAs ) and other retirement accounts will now be considered fiduciary investment advice Will entail compliance costs and likely impact compensation practices as well as revenue sharing arrangements Source: S&P Global Ratings 39

40 Increased U.S. regulation on foreign banks: Intermediate holding companies Bank Name SACP ICR Consolidated Assets as of 2015 ($ billions) Group Status Note: NA means Not Assigned Conversion Rates as of year-end 2015 GCP: Group Credit Profile *As of Dec. 31, 2014 **Represents U.S. group s consolidated credit profile 40 Parent GCP Company Type Barclays Capital Inc. NA A Core a- Broker Dealer BBVA Compass Bancshares Inc. NA BBB bbb+ Holding Company Yes Compass Bank bbb+ BBB Highly Strategic bbb+ Commercial Bank BMO Financial Corp NA A a+ Holding Company Yes BMO Harris Bank, National Association bbb A Core a+ Commercial Bank BMO Capital Markets Corp. NA --/--/A Core a+ Broker Dealer BMO Harris Financing Inc. NA A+ NA Core a+ Finance Company BNP Paribas Securities Corp. NA A 106.1* Core a Broker Dealer Bank of the West bbb+ A Strategic a Commercial Bank First Hawaiian Bank a- A Moderately Strategic a Commercial Bank Credit Suisse (USA) Inc. NA A Core a Investment Bank / Broker Dealer Credit Suisse Securities (USA) LLC NA A Core a Broker Dealer Deutsche Bank Trust Corporation NA BBB bbb+ Holding Company No Deutsche Bank Trust Company Americas NA BBB Core bbb+ Commercial Bank Deutsche Bank Trust Company Delaware NA BBB+ 0.3 Core bbb+ Commercial Bank Deutsche Bank National Trust Company NA BBB+ 0.2 Core bbb+ Trust Agency Deutsche Bank Securities Inc. NA BBB Core bbb+ Broker Dealer HSBC USA Inc. NA A aa- Holding Company No HSBC Bank USA N.A. bbb+ AA Core aa- Commercial Bank HSBC Finance Corp. bb- A 24.1 Highly Strategic aa- Finance Company HSBC Securities (USA) Inc. NA AA Core aa- Broker Dealer Bank Leumi USA NA BBB+ 6.1 Highly Strategic a- Commercial Bank Mizuho Securities USA Inc. NA A 27.5 Core a Broker Dealer MUFG Americas Holdings Corporation a-** A a+ Holding Company Yes MUFG Union Bank N.A. NA A Core a+ Commercial Bank Mitsubishi UFJ Securities (USA) NA A Core a+ Broker Dealer RBC USA Holdco Corporation NA AA aa- Holding Company Yes RBC Capital Markets, LLC NA AA Core aa- Broker Dealer City National Bank Beverly Hills NA A Highly Strategic aa- Commercial Bank RBS Securities Inc. NA BBB Core bbb+ Broker Dealer Santander Holdings USA Inc. bbb-** BBB a- Holding Company Yes Santander Bank, N.A. NA BBB Highly Strategic a- Commercial Bank Santander BanCorp NA BBB- 5.5 a- Holding Company No Banco Santander Puerto Rico bb+ BBB- 5.3 Moderately Strategic a- Commercial Bank SG Americas Securities, LLC NA A 38.1 Core a Broker Dealer Sumitomo Mitsui Trust Bank (USA) Ltd. NA A 2.4 Core a Commercial Bank TD Bank US Holding Company NA AA- NA aa- Holding Company No TD Bank N.A. NA AA Core aa- Commercial Bank TD Ameritrade Holding Corp. a A 26.4 Strategic aa- Holding Company No TD Securities (USA) LLC NA AA Core aa- Broker Dealer UBS Americas Inc. NA --/--/A-1 -- a+ Holding Company No UBS Bank USA NA --/--/A Core a+ Commercial Bank UBS Securities LLC NA A Core a+ Broker Dealer UBS Finance (Delaware) LLC NA --/--/A-1 -- a+ Finance Company Will use existing rated holding company as new IHC?

41 Sub-groups of rated banks Regional Banks Associated Banc Corp. Astoria Financial Corp. Money Center Banks BancorpSouth Inc. Bank of the West Bank of North Dakota BBVA Compass Bancshares, Inc. Bank of America Corp. Citigroup, Inc. Large Regional Banks BMO Financial Corp. BOK Financial Corp. Commerce Bancshares Inc. Cullen/Frost Bankers Inc. JPMorgan Chase & Co. Trust Banks American Express Co. BB&T Corp. Capital One Financial Corp. Comerica Inc. Discover Financial Corp East West Bancorp. FirstBank Puerto Rico First Citizens BancShares First Hawaiian Bank First Horizon National Corp. First Midwest Bancorp Inc. First National Bank of Omaha, Inc.. First Republic Bank Bank of New York Mellon Northern Trust State Street Fifth Third Bancorp Huntington Bancshares Inc. KeyCorp FirstMerit Corp. Hancock Holding Co. HSBC USA Inc. MUFG Americas Holdings Corporation New York Community Bancorp Inc. OFG Bancorp Broker Dealers Goldman Sachs Morgan Stanley M&T Bank Corp. PNC Financial Services Group Regions Financial Corp. SunTrust Banks Inc. U.S. Bancorp Wells Fargo & Co. Zions Bancorporation Popular Inc. Peoples United Financial Inc. Citizens Financial Group Santander Bancorp Santander Holdings USA, Inc. S&T Bank SVB Financial Group Synovus Financial Corp. Synchrony Financial TCF Financial Corp. Texas Capital Bancshares, Inc. Trustmark Corp. UMB Financial Corp. Valley National Bancorp Webster Financial Corp. Western Alliance Bank Large Regional Banks included with Regional Banks throughout in the presentation. Data in the presentation may exclude certain domestic subsidiaries of foreign banks & certain other banks that do not file Y9C s 41

42 Additional research available You can access the following research articles at US Weekly Economic Roundup: Scattered Economic Showers July 29, 2016 Increased U.S. Regulation On Foreign Banks Will Likely Have A Limited Impact On Ratings, July 11, 2016 The Fed s 2016 Capital Assessment Suggests U.S. Banks Are Prepared To Withstand Significant Stress, June 30, 2016 Rating Component Scores For U.S., Canadian, And Bermudian Banks (June 2016), June 29, 2016 Assessing The Creditor Waterfall For U.S. Global Systemically Important Banks, June 14, 2016 U.S. Banks Contend With Weak Capital Markets And Credit-Quality Deterioration, But Mostly Remain In Good Shape, June 2, 2016 The Living Will Process Is Testing U.S. Banks Will, April 15, 2016 The Pros And Cons Of The Fed s Recent Proposal For U.S. Banks Total Loss Absorbing Capacity, February 18, 2016 Rating Actions Taken On Several U.S. Regional Banks With Large Energy Exposures On Expectation for Higher Loan Losses, February 9,

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