Zions Bancorp's Profit Edges Lower -- Update

By Josh Beckerman And Julie Steinberg 

Zions Bancorp. said its earnings edged down in the most recent quarter as a key measure of lending profitability declined and the bank strengthened its reserves to cushion against potential weakness in its portfolio of energy loans.

Earnings came in above Wall Street estimates.

Chairman and Chief Executive Harris Simmons, on a call with analysts on Monday, said the results were in line with the bank's expectations.

The bank posted earnings of $75.3 million, down from $76.2 million in the prior-year period. On a per-share basis, earnings fell to 37 cents from 41 cents.

Analysts had expected 36 cents a share, according to Thomson Reuters.

Zions Bancorp, like other regional banks, has been monitoring its energy-loan portfolio in light of a sustained drop in oil prices. The bank on Monday said loans related to oil and gas totaled $3.16 billion as of the first quarter, or about 7.9% of total loans, up from 7.7% of total loans the previous quarter.

Mr. Simmons said the bank last fall began reviewing its energy relationships and that further downgrades were expected in coming weeks. Still, there were no energy-related charge-offs this quarter.

As of the first quarter, about $65 million, or 2.1%, of loan balances related to oil and gas were nonperforming, up from $17 million, or 0.5% as of the fourth quarter.

During a six-month period beginning Sept. 30, Amegy Bank, one of Zions's subsidiaries, bolstered its allowance for credit losses by a net $55 million.

Zions in recent years has cleaned up its balance sheet, shedding risky collateralized debt obligations, the kind that had featured prominently in the 2008 financial crisis.

In the most recent quarter, it reclassified all of its remaining held-to-maturity CDO securities, or about $79 million at amortized cost, to available-for-sale securities. Such a move gives the bank "flexibility" to manage the portfolio, departing Chief Financial Officer Doyle Arnold said on the call. The Wall Street Journal reported last month that the bank was considering selling off its entire portfolio.

Net interest margin, an important measure of lending profitability, fell to 3.22% from 3.31% a year earlier. Still, net interest income at the Salt Lake City-based bank rose to $417.3 million from $416.5 million.

Noninterest income, or fee income generated from businesses like wealth management, totaled $122 million, down from $138 million a year earlier. Mr. Arnold on the call said fee income "remains a major initiative for us" but that driving growth in that area is "a challenge in this environment." He said he expects "core components" of noninterest income to "increase modestly" over the next few quarters.

Write to Josh Beckerman at [e-mail] and Julie Steinberg at [e-mail]

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