L a r g e Banks: 3Q Result s

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1 L a r g e Banks: 3Q Result s j a n n e y corporat e credit Less optimistic thoughts were shared by some of the largest banks, after rough macro dynamics put pressure on performance. 3Q results for US banks were more mixed than recent quarters, with only 8 of the 15 largest US banks by assets meeting or exceeding consensus for net income. Firms cited as reasons for the softer performance the stronger US dollar, the drop in equity valuations globally (and particularly in emerging markets), the lack of rising ratings, and increased bouts of volatility and market illiquidity. That being said, some regional banks saw improvements in traditional banking businesses, though the growth remained sluggish. Near-term outlooks varied among management teams, as the discussion about a potential for rates to rise stayed at the forefront. Third quarter 2015 bank announcements worsened from second quarter s more mixed results, to add to likely the most challenging year for large financial institutions in a few years. Once again, low asset reinvestment rates ate into margins, while market volatility globally and the stronger US dollar added pressure in the nontraditional banking arena. This quarter showed an unusual trend, whereby only 8 of the 15 banks exceeded or met Street estimates for net income. The weakest performers this quarter were those banks most heavily exposed to the capital markets, and particularly fixed income, commodities, and currencies. Some firms used the volatility for their advantage, but the bouts of market illiquidity hindered results. Jody Lurie Corporate Credit Analyst jlurie@janney.com See page 7 for important information regarding certifications, our ratings system as well as other disclaimers. Traditional banking operations were slow moving, but by-and-large growing, and firms continued on their cost-cutting initiatives to balance out the issues brought on by low rates. Interestingly, many firms saw net interest margin improvements, albeit minimal, in the quarter. What s more, noninterest income was the weaker piece of the business, but the non-macro reasons for such softness varied across firms. A few institutions recorded loan growth, particularly on the commercial side, but also real estate operations showed signs of life in more economically depressed regions. Legacy portfolio run-off was still prevalent and welcomed, and firms maintained solid asset quality, as seen by record (or near record) low net charge offs and nonperforming loans. On the deposit side, costs were already low, so firms did not have the ability to minimize expenses, and instead looked at ways to improve mix if possible. Capital quality exceeded requirements, even after firms instituted robust share buybacks and dividend plans. Some banks joined in the fervor of M&A this year, resulting in reduced capital ratios, but expanded platforms and strategic growth opportunities in the sluggish growth environment. Like in the past two quarters, firms noted their compliance with regulation around liquidity, which took effect at the beginning of Some firms disclosed exposure to the energy space in light of industry weakness, mentioning provision increases along with measures taken to reduce portfolio risks. Large Banks: 3Q Results Page 1 Source: Janney FISR; Company Reports; SNL Financial

2 Selected Banks ($ in billions) Net Inc Surp Total Assets Assets Deposits Net Inc NIM NII/Op Rev JPMorgan Chase -7.2% $2, % -1.1% 8.2% 9bps -302bps Bank of America 8.0% $2, % 1.1% -15.3% -25bps 213bps Citigroup 1.1% $1, % -0.4% -11.7% 2bps -201bps Wells Fargo 0.1% $1, % 1.4% 3.4% 1bps -40bps Goldman Sachs -19.5% $ % 36.1% Morgan Stanley -46.2% $ % 5.8% -42.7% U.S. Bancorp -1.8% $ % -0.5% 0.4% 3bps -136bps BNY Mellon 4.6% $ % -6.2% -7.0% -2bps -1bps PNC -3.6% $ % 2.2% 2.8% -4bps -136bps Capital One 9.6% $ % 2.0% 29.1% 16bps -80bps State Street -7.7% $ % -19.2% 38.4% 1bps 87bps BB&T 4.8% $ % 11.3% 6.4% 10bps -402bps SunTrust 13.5% $ % 1.0% 11.1% 11bps -253bps Fifth Third -3.5% $ % -2.1% 23.3% 2bps 185bps Regions 2.2% $ % 0.1% -9.5% 0bps -64bps Some firms disclosed exposure to the energy space in light of industry weakness, mentioning provision increases along with measures taken to reduce portfolio risks. Large Banks: 3Q Results Page 2 AVERAGE -3.0% $ % -0.3% 4.9% 2bps -87bps ; *We excluded Northern Trust from this report, as total assets reached above the $100B threshold in 4Q 2013, but has been below the mark historically Basel III Capital and Liquidity Coverage Ratio Requirements Bank ($ in bln) Standardized Basel III Est. Tier 1 Common Chg Advanced Basel III Est. Tier 1 Common Chg High Qlty Liquid Assets ($B) Liquidity Coverage Ratio Sup. Leverage Ratio JPMorgan Chase 11.4% 20bps 11.4% 40bps $505 >80% 6.3% Bank of America 10.8% 50bps 11.0% 60bps $499 >100% 7.0% Citigroup >11.6% N/A 11.6% 20bps N/A N/A 6.8% Wells Fargo 10.7% 20bps >10.7% N/A N/A N/A N/A Goldman Sachs 12.4% 60bps 12.7% 20bps $193 N/A 5.8% Morgan Stanley >12.4% N/A 12.4% -10bps $191 N/A 5.5% U.S. Bancorp 9.2% 0bps 12.4% 0bps N/A >80% N/A BNY Mellon 9.9% -10bps 9.3% -60bps N/A >100% 4.8% PNC 10.1% 10bps N/A N/A N/A >100% N/A Capital One 12.1% 0bps >8% N/A N/A >100% N/A State Street 11.2% 30bps 11.4% 0bps N/A N/A 5.4% BB&T 10.1% -30bps N/A N/A N/A 136.0% N/A SunTrust 9.9% 13bps N/A N/A N/A >90% N/A Fifth Third 9.4% 0bps N/A N/A N/A 107.0% N/A Regions 10.7% -40bps N/A N/A N/A >90% N/A

3 Citigroup guided for 50 more branch closures by 1Q16, and expects slightly weaker net interest margin in 4Q15. Large Banks: 3Q Results Page 3 Third Quarter Bank Earnings Summary: Company Synopsis Selected Banks JPMorgan Chase (A3/A/A+) Bank of America (Baa1/A- /A) Citigroup (Baa1/A- /A) Wells Fargo (A2/A+/ AA-) Net Inc Key Surp Positives -7.2% 8.0% 1.1% 0.1% Key Negatives Net income expanded 8%, despite Earnings missed Street estimates, as a top line decline, as sizable tax benefits revenues fell 4.1% and 6.4% YoY offset one-time legal expenses including to $23.5B. All major business segments the recently announced CDS settlement. showed revenue erosion versus 2Q15 Net interest margin improved 7bps and 3Q14. The efficiency ratio weakened on a shift in mix towards higher loan during the same period, despite lower balances, When asked if the economy was noninterest expense. Fixed income and getting stronger or weaker, management commodity trading recorded softer results commented, The US economy is doing on lower client activity and sector volatility. pretty well, attributing the sentiment HQLA fell, despite improvements in capital towards demand for consumer loans, cushion from 2Q. The firm increased its among other items. Management is wholesale business reserves in response to pushing further into its Payments business. Oil & Gas. Earnings beat the Street, as noninterest Net income shrank, but outperformed income showed strong growth to offset YoY, given sizable legacy/legal costs in 3Q14 weaker net interest income. Noninterest that brought earnings into the red. Net expense fell on lower legacy costs and interest margin gave up 27bps, partly headcount. In consumer banking, average the result of market-related adjustments. loans and leases rose and YoY on Wealth management client balances fell more auto and residential mortgage loans. from 2Q on unfavorable market valuations. Wealth management average loans grew, Fixed Income, Currencies, & Commodities matched by a rise in average deposits. sales & trading revenues dropped, offsetting Net charge-offs remained near the lowest the gains seen in Equity sales & trading levels. Basel III common equity Tier 1 rose, revenues YoY. Debit valuation adjustments and the SLR ratio held steady. further cut into Global Markets top line. Earnings outperformed Street expectations. Revenues fell 4.0% and 5.1% YoY, due Citicorp net income doubled YoY, despite to unfavorable currency effects and a runoff falling, while "Bad Citi" Citi Holdings at Citi Holdings. Excluding mark-to-market was profitable, and shrank further. Net DVA, revenue still showed weakness. Like interest margin was flattish, while the many peers, fixed income sales & trading efficiency ratio improved as legal expenses revenue dropped substantially and lessened. Nonperforming assets stayed near YoY, only partially offset by improved lows, as asset quality strengthened and the equities revenue. The firm built additional bank focused on the balance sheet. Basel energy-related reserves in light of the III Tier 1 common improved 20bps and the environment. Management guided for 50 SLR 10bps from 2Q, despite management's more branch closures by 1Q16, and expects shareholder remuneration efforts. slightly weaker net interest margin in 4Q15. The bottom line exceeded the Street by a Mortgage banking, investment banking, penny. The efficiency ratio improved, and insurance income fell both and thanks to lower employee benefits to YoY on decreased activity. Net interest more than offset higher salaries. C&I loans margin fell 1bp on deposit growth. expanded, partially thanks to the purchase Average loan yield gave up 9bps, of the GE Capital portfolio, while consumer due to the low-rate environment. Wealth loan growth benefited from first mortgage, Management assets under management auto, credit card, and security-based dropped from equity outflows, partially lending. Deposits moved up slightly, while offset by fixed income inflows. Wholesale average cost held steady. Nonperforming Banking net income eroded and YoY. loans fell, and net charge offs stayed The bank guided for a weaker efficiency near lows. ratio for FY2015 vs. 3Q15.

4 Goldman Sachs (A3/A-/A) -19.5% Investment Banking net revenues grew 6% The bottom line missed Street estimates,, despite a 23% drop YoY, on increased and net income decreased 36% YoY. The M&A and debt underwriting activities. firm cited reduced activity and softer asset Management once again used reductions prices as challenges for the quarter. Net in compensation & benefits costs to bolster revenues were 18.2% down YoY on weaker margins. Noncomp. expense fell results across departments. Fixed Income, on lower legacy litigation, D&A, market Currency, and Commodities revenue shrank development, and occupancy costs. In turn, and YoY from decreased mortgages, net income rose 36%, despite a similar currencies, and interest rate products decline YoY. Assets under supervision revenues. Net interest income was weaker bumped up slightly and YoY. The firm YoY. Management expressed "renewed has limited exposure to energy firms. concerns about global economic growth." Morgan Stanley (A3/A-/A) -46.2% The firm further cut compensation expense, Earnings underperformed consensus, as only partially offset by noncomp. expense. both net revenue and net income recorded Advisory revenues expected YoY on M&A double-digit drops and YoY, both activity, while equity sales and trading including and excluding mark-to-market revenues were flattish. Management sees DVA. Net revenues were lower across the business mix as a positive, reflected departments and YoY. Management by Wealth Management providing some described the quarter as "challenging," stability while Fixed Income stayed volatile. pointing to seasonality, the fall in the equity Basel III Tier 1 common was well above markets, political uncertainty, and "periodic some peers' levels, despite falling. bouts of risk aversion." Goldman Sachs expressed renewed concerns about global economic growth. U.S. Bancorp (A1/A+/ AA) -1.8% Net revenue ticked up 2% and 3% US Bancorp missed consensus bottomline estimates by under a penny. Net YoY on higher net interest and noninterest income. Net income recorded 1% YoY interest margin fell 12 basis points and the growth, partly the result of decreased efficiency ratio weakened YoY. Noninterest provisions, and net interest margin expense ate into margins, as compensation improved 1bp. C&I loans drove the and professional services costs trended 3% rise in total loans from 3Q14. Net higher vs. 2Q and 3Q14. Nonperforming charge offs shrank and YoY. assets were modestly higher than 2Q levels. BNY Mellon (A1/A+/ AA-) 4.6% The bottom line exceeded analysts' guesses. Revenue edged down 3% and 18% Lower noninterest expense emanated YoY, the latter due in part to an asset sale, from a stronger dollar and benefits from and the softness carried into the bottom management's structural cost reductions, line. Management cited the stronger dollar even with the rise in headcount. Assets and smaller investment management fees under custody/administration improved as some reasons for top line decline. Assets modestly, despite negative effects of lower under management were down vs. 2Q, but equity valuations and currency. flattish vs. 3Q14. PNC -3.6% (A3/A-/A+) The 3% growth in average loans YoY Earnings missed consensus, as net income was attributable to commercial lending was flattish and YoY. Net interest expansion, offsetting the consumer lending margin eroded 6bps from 2Q from lower runoff seen in non-strategic residential benefit from purchase accounting accretion. mortgage portfolios. Average deposits rose Noninterest income fell and YoY on on higher demand, savings, and money weaker asset management and residential market deposits. Management focused mortgage revenues. Noninterest expense on trimming commercial paper balances showed a modest decline, despite the outstanding to adapt to regulation bank's efforts to trim costs, as personnel and ratings agency methodology. costs rose. Net charge offs increased Nonperforming loans falling and YoY. and YoY. Large Banks: 3Q Results Page 4

5 Capital One (Baa1/ BBB/A-) 9.6% The bottom line outperformed Street Both Consumer and Commercial Banking estimates, as net interest income expanded, net revenues fell from 2Q, carrying into while noninterest income held steady the bottom line. The drop in international and YoY. Net interest margin improved credit card loans partially offset the growth 17bps, partially the result of the build in domestic credit card loans. Net charge in UK PPI reserves. Noninterest expense fell offs increased 5bps in the quarter and, despite higher marketing costs, and the 30+ day delinquency rate increased the efficiency ratio notably strengthened 30bps. Management once again gave a from 2Q. Interest bearing deposits grew at rough estimate for Basel III Tier 1 common a similar pace to total deposits. (advanced) of "above 8% target." BB&T is in a transformational period, given the firm acquired regional bank Susquehanna Bancshares for $2.4B in August and is in the process of buying its peer National Penn Bancshares for $1.8B. State Street (A2/A+/ AA-) -7.7% BB&T 4.8% (A2/A-/A+) The negative impact of the strong US dollar Earnings sizably missed Street expectations, to fee revenue was "largely offset" by a as net income shrank 16% and 17% similar effect to expenses. Fee revenue YoY. Management attributed softer results bumped up 1% YoY, despite the erosion to the drop in global equity valuations, low. The increased currency volatility interest rates, and the strong US dollar. helped foreign exchange trading revenue. Fee revenue declined 3% and net interest Management reiterated its multi-year revenue 5%. Operating expenses rose plan to trim overhead costs, including vs. 3Q14 on higher compensation, benefits, headcount reduction. Basel III Tier 1 and IT systems costs. The firm anticipates common (advanced) was flat, despite lower than previously anticipated fee management's desire to give back to revenue, and net interest revenue at the shareholders. low end of its guidance for FY2015. Earnings beat analysts' guesses by over a BB&T is in a transformational period, penny (ex-merger-related charges), in part given the firm acquired regional bank thanks to the net interest income boost Susquehanna Bancshares for $2.4B in from Susquehanna. Net interest income August and is in the process of buying improved vs. 2Q, partly due to the recent its peer National Penn Bancshares for deal, and net interest margin improved 8bps $1.8B. Despite topline expansion from from higher yields on Susquehanna loans. deals completed so far, noninterest income Noninterest expense edged downwards, declined from weaker insurance despite M&A related costs, as 2Q showed income. Residential mortgage loans fell a loss on early debt extinguishment.. Excluding acquisitions, deposit mix Excluding recent purchases, average loans softened from 2Q. Basel III Tier 1 common grew from a rise in C&I loans. gave up 30bps from the recent M&A deals. SunTrust (Baa1/ BBB+/A-) 13.5% Earnings exceeded Street expectations, and The rise in net interest income was offset net interest margin ticked up 8bps on by the fall in noninterest income on reduced long-term debt, higher commercial lower capital markets related income loan related swap income, and other items. (e.g. investment banking and trading), Lower compensation and benefits expense translating to revenues shrinking 1% and bolstered margins, helped by a one-time net income 7%. Consumer loans legacy item. Average loans showed a declined YoY, a result of reduced indirect modest increase on nonguaranteed auto loans. Delinquency rates (30-89 residential mortgages and consumer direct day) increased from 2Q. The firm built loans. Net charge offs and nonperforming additional reserves to address its energy assets edged down further from last portfolio, and it sees its risk in the space as quarter. "manageable." Large Banks: 3Q Results Page 5

6 Fifth Third (Baa1/ BBB+/A) -3.5% Net income grew 23% and 12% YoY, Earnings fell short of consensus by a as both net interest income and noninterest penny. Net interest margin eroded 1bp income showed improvements, though the and 21bps YoY on lower yields for latter was due to some one-time items. interest-earning assets and debt issuance. The efficiency ratio improved meaningfully Mortgage and corporate banking revenues, as occupancy and benefits expenses fell on seasonality. Net charge offs rose declined. Average loans bumped up 43bps from the restructuring of a modestly and YoY, benefiting from student loan backed commercial credit. The both commercial and consumer loans. firm sold 29 retail locations, and expects Management made progress with "longstanding matters with government Management guided for a "slight to consolidate additional branches by midagencies" in recent weeks. down tick in 4Q net interest margin." At Regions Financial, total loan balance expanded 2% and 6% YoY, as the firm saw growth in most products (even mortgages) and geographies Regions Financial (Baa3/BBB/ BBB) 2.2% Earnings met analysts' expectations. Total Net income fell 9% and 19% YoY. revenue bumped up 1% YoY on higher net Net interest margin gave up 3bps interest income and flat noninterest income. on lower asset yields and higher cash The total loan balance expanded 2% balances. Noninterest income fell 16% in and 6% YoY, as the firm saw growth in comparison to a strong 2Q to more than most products (even mortgages) and offset the slight rise in net interest income. geographies; this build out was matched by Net charge offs ticked up from the low of flattish and 3% YoY deposit growth. last quarter. Basel III Tier 1 common shrank More importantly, deposit and funding by 40bps. Management disclosed costs remained near historical lows. $3.3B direct and indirect energy exposure. Large Banks: 3Q Results Page 6

7 Analyst Certification I, Jody Lurie, the Primarily Responsible Analyst for this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject sectors, industries, securities, and issuers. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Janney Montgomery Scott LLC ( Janney ) Debt Research Disclosure Legend Janney may seek compensation for investment banking services for any company listed in this report in the next 3 months. The research analyst is compensated based on, in part, Janney s profitability, which includes its investment banking revenues. Additional information available upon request. Definition of Issuer/Company Outlooks Janney FIS employs a rating system which considers the company, but not any specific debt or equity securities of the company and is not making a recommendation with regard to any specific debt securities of the company. Outlooks reflect our opinion about how credit factors of the company may affect its credit rating(s). Positive: Janney FIS believes there are factors which point towards improving issuer or sector credit quality which may result in potential credit ratings upgrades Stable: Janney FIS believes there are factors which point towards stable issuer or sector credit quality which are unlikely to result in either potential credit ratings upgrades or downgrades. Cautious: Janney FIS believes there are factors which introduce the potential for declines in issuer or sector credit quality that may result in potential credit ratings downgrades. Negative: Janney FIS believes there are factors which point towards weakening in issuer credit quality that will likely result in credit ratings downgrades. Definition of Sector/Industry Ratings Overweight: Janney FIS expects the target asset class or sector to outperform the comparable benchmark (below) in its asset class in terms of total return. Marketweight: Janney FIS expects the target asset class or sector to perform in line with the comparable benchmark (below) in its asset class in terms of total return. Underweight: Janney FIS expects the target asset class or sector to underperform the comparable benchmark (below) in its asset class in terms of total return. Janney FIS Outlooks Distribution as of 10/28/2015 IB Serv./Past 12 Mos. Outlook Count Percent Count Percent Positive Stable Cautious Negative Benchmarks Asset Classes: Janney FIS ratings for domestic fixed income asset classes including Treasuries, Agencies, Mortgages, Investment Grade Credit, High Yield Credit, and Municipals employ the Barclay s U.S. Aggregate Bond Market Index as a benchmark. Treasuries: Janney FIS ratings employ the Barclay s U.S. Treasury Index as a benchmark. Agencies: Janney FIS ratings employ the Barclay s U.S. Agency Index as a benchmark. Mortgages: Janney FIS ratings employ the Barclay s U.S. MBS Index as a benchmark. Investment Grade Credit: Janney FIS ratings employ the Barclay s U.S. Credit Index as a benchmark. High Yield Credit: Janney FIS ratings for employ Barclay s U.S. Corporate High Yield Index as a benchmark. Municipals: Janney FIS ratings employ the Barclay s Municipal Bond Index as a benchmark. 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For investment advice specific to your individual situation, or for additional information on this or other topics, please contact your Janney Financial Consultant and/or your tax or legal advisor. Large Banks: 3Q Results Page 7