Zions Bancorp said more of its energy borrowers faced financial strains in the third quarter as low oil and gas prices persisted.
The Salt Lake City-based bank said 15.7 percent of its oil and gas loans are now considered classified, meaning they are showing signs of financial stress, up from 11.3 percent in the prior quarter. The bank also had more oil and gas loans that were nonperforming and charged off.
Zions said more credit downgrades were likely for its energy portfolio, but said it has established a substantial reserve to mitigate losses.
Energy-related loans declined $86 million at the bank from the second quarter, dragging down loan growth.
Overall, the bank’s third-quarter earnings climbed on lower expenses and higher interest income, though a key measure of lending profitability declined.
Zions bank has moved to reduce its risk in recent periods, selling the last of its collateralized-debt-obligation securities, which had hampered the lender in Federal Reserve stress tests.
CEO Harris Simmons said Monday that the company received regulatory approval to consolidate its seven subsidiary banks, including Vectra Bank Colorado, under a single national bank charter, expected to be completed on Dec. 31.
For the quarter, Zions reported a profit of $101 million, up from $95.9 million a year earlier. On a per-share basis, which reflects the payment of preferred dividends, earnings rose to 41 cents from 40 cents. Revenue, a combination of interest income and noninterest income, jumped 4.4 percent to $556.2 million.
Analysts polled by Thomson Reuters had forecast earnings of 42 cents on $567 million in revenue.
Net interest income improved to $425.4 million from $416.8 million a year earlier, while noninterest income grew to $130.8 million from $116.1 million.
But net interest margin, an important measure of lending profitability that compares how much a bank earns on loans and investments to what it pays on deposits, dropped to 3.11 percent from 3.18 percent last quarter and 3.2 percent a year earlier.
Noninterest expenses dropped about 10 percent to $396.1 million.
Loans and leases rose 1 percent to $39.52 billion from the year-earlier period.
Separately on Monday, Zions said it planned to buy back up to $180 million of some preferred stock and depositary shares.
