Losses in the oil and gas portfolio drove MUFG Americas Holdings' provision for credit losses higher in the third quarter, though the company's profits still rose year over year.
The $151.1 billion-asset MUAH, the parent of San Francisco-based MUFG Union Bank, on Monday reported net income of $260 million for the quarter, up 38.3% from the same period in 2015. Revenue was $1.34 billion, up 14.5% from the third quarter last year largely thanks to gains in investment banking, trading, syndication fees and affiliate fees.
Profits were, however, down 22.2% from the second quarter. Noninterest expense of $952 million climbed 5% from last quarter and 2.8% from the same period last year, largely as a result of greater salaries and employee benefits as well as the increase in FDIC insurance expense.
The company charged off $124 million of loans, most of them in the oil and gas sector, in the period that ended Sept. 30, an increase of 1027.3% over the prior-year quarter and a 27.8% uptick from the period that ended June 30. Of that total, $45 million in chargeoffs resulted from loans being transferred to held for sale.
The increase in chargeoffs caused the bank to set aside $73 million for credit losses, as compared with $18 million for the third quarter of 2015.
MUAH, which is based in New York, is reducing its exposure to energy, specifically by shrinking its holdings of loans to petroleum exploration and production firms.
At Sept. 30, loans to these firms made up 69% of the company's total energy portfolio, down from 78% three months earlier. Overall, outstanding PEP loans shrank by $502 million during the third quarter.
MUAH is a holding company comprising all American subsidiaries of its Tokyo-based parent, Mitsubishi UFJ Financial Group. Those subsidiaries include MUFG Securities Americas, a broker-dealer, and other nonbank entities, all of which were transferred to MUAH on July 1, in accordance with new Federal Reserve Board requirements.