Energy loan portfolios decline for most large US lenders in the space

Higher oil prices helped improve the credit outlook for energy loans, but most U.S. banks with over $1 billion in lending exposure to the sector continued to report declines in their portfolios as improved cash flows helped borrowers pay off debts.

Of the eight lenders that reported the highest volume of energy sector loans, only Pittsburgh-based PNC Financial Services Group Inc. posted a quarter-over-quarter increase in the second quarter, and that was driven by the June closing of the BBVA USA Bancshares Inc. acquisition, which added $2.1 billion in balances to the buyer's $4.7 billion oil and gas loan portfolio. Memphis, Tenn.-based First Horizon Corp. posted the biggest decline in energy loans with a 14.5% quarter-over-quarter drop, and banking giant Wells Fargo & Co. had the second biggest decline with a 7.3% drop.

In 2021, Wells Fargo has also seen a drop in its oil, gas and pipeline nonaccruals, loans in which collection is deemed uncertain and are at least 90 days past due. As of June 30, commercial and industrial nonaccruals from that segment stood at $486 million, down 49.0% from the year-end 2020.

Tulsa, Okla.-based BOK Financial Corp., which reported the third largest decline in energy loan portfolios, noted that its core loan growth remained a challenge as its energy and commercial real estate customers continued to pay down their debts or refinance in long-term markets, President and CEO Steven Bradshaw said during an earnings call. COO Stacy Kymes added that while energy balances continued to go down, the pace of the decline is slower than in previous periods.

"Both oil and natural gas prices have moved up swiftly in 2021, leading to improved credit metrics and providing material cash flow for energy companies," Kymes said.

BOK's nonaccruing commercial energy loans dropped to $70.3 million as of June 30, down from $101.8 million as of March 31. Kymes expects drilling activity will pick up in autumn when capital budgets are established, potentially increasing loan demand.

Higher oil prices helped lead to a reduction in criticized and nonaccrual loans for Dallas-based Comerica Inc., CFO James Herzog said during the company's earnings call. The bank, however, continues to apply severe economic forecasts to both areas, Herzog added.

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