While still cautious, banks with substantial exposure to the energy sector struck more upbeat tones during the fourth quarter earnings season this month. Executives said a recovery in oil prices combined with an anticipated end to the pandemic could pave a path for stronger oil and gas revenue in 2021 and a substantial reduction in troubled loans.

Energy Credit

Over the course of the second and third quarters of 2020, banks active in energy lending set aside millions of dollars in reserves to cover souring loans, as energy companies struggled amid the demand shocks imposed by coronavirus outbreaks. Banks reported elevated levels of loan delinquencies in addition to charging off loans tied to companies that entered Chapter 11 bankruptcy.

Executives at Salt Lake City-based Zions Bancorp, said...