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US banks pare energy exposure in Q2 amid volatile oil prices

Amid a tumultuous quarter for the energy sector, including a collapse of oil prices in April that briefly pushed futures into negative territory, most U.S. banks reported linked-quarter declines in their energy loan concentration metrics.

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Among 11 banks that have reported energy exposures as of July 20, Zions Bancorp NA was one of just two banks to report a quarter-over-quarter increase in energy loans as a percentage of total gross loans. First Horizon National Corp. was the other bank to post a modest increase in energy exposure.

Following Hancock Whitney Corp.'s July 17 announcement that it would sell $497 million of its energy loans, analysts have asked banks with energy exposure whether they would be making similar moves. Zions executives said Hancock Whitney's energy loans were more regionalized and the credit mark included in the sale suggested a different product type from Zions' portfolio.

"It's just a very different set of circumstances to our portfolio," said President and COO Scott McLean, according to a transcript. "So the short answer is, there's really not a lot of similarity, and we're not thinking about selling off a portion of our portfolio to reduce the risk."

During the week ended July 17, Citigroup Inc. reported the largest nominal amount of outstanding energy and related exposure with $22.2 billion in outstanding loans, or 3.2% of its gross loans.

"When I think about sectors that drove a good portion of the reserve build that we've seen, I think about aviation, I think about energy, I think about autos, commercial real estate to some extent, and in retails and retailing, and that combination probably drove one-third of the build that we saw," CFO Mark Mason said on the company's second-quarter earnings call.

PNC Financial Services Group Inc. reported $4.1 billion in outstanding oil and gas loans, a decrease of about $500 million from the linked quarter. Nonperforming loans in this portfolio continue to increase, with about 4% of the current outstanding loans in the portfolio considered nonperforming, CFO Robert Reilly said on the company's second-quarter earnings call.

"We believe we're properly reserved for this portfolio, and we'll continue to monitor market conditions," he said.

Regions Financial Corp. reported a credit loss provision of $882 million for the quarter. "The provision reflects adverse conditions and significant uncertainty within the economic outlook, combined with downgrades in certain portfolios, particularly energy, restaurant, retail and hotel as well as the impact of $182 million in net charge-offs," President and CEO John Turner Jr. said on the company's second-quarter earnings call.

About 10.5% of the company's reserves are allocated for "high-risk" energy loans in the oilfield services and exploration and production sectors as a percentage of total oilfield services and E&P loans, according to its investor presentation.