Zions 4Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

We feel like we’ve done a good job on the energy side

“We expect some deterioration in the portfolio as a result of the sharp decline in energy prices, particularly if price levels remain low for a long period of time. However, we’re also feeling very confident that we’ve maintained strong underwriting discipline and risk management throughout the last several quarters and several years for that matter, and that in combination with our strong capital position and loan loss reserves, we should navigate this bump reasonably well.

Our capital ratios are among the best in the industry

“Today our capital ratios are among the best in the industry, both in quality and quantity and we’ve made significant progress in reducing the cost of such capital. To the extent that we see further slowing in the global economy, we believe we are very well positioned to weather that well.

Technology driving labor efficiency

“On the expense front, related to our technology initiative, we’re very focused on expense control. As technology advances we’re able to reduce certain labor intensive tasks.

We expect loan growth in 2015 to be in line with 2014, although Texas may be slower

“We also expect growth in 2015 to be about in line with 2014. We see improved economies in most of our footprint, although Texas and Amegy Bank may likely produce slower growth this year than last, in part due to potential effects of the decline in energy prices and energy related activity.

Worth noting that gas declined this much and never came back and everything was ok

“it is also worth recalling that natural gas prices also fell significantly in the 2008-2009 period, and those prices have not rebounded fundamentally. Gas production was a very significant component of most exploration companies and impacted energy service companies’ revenues as well at that time. And in many cases, it was more than 50% of total production back then. So losses from that period are certainly relevant to the current outlook.

Only 30% of exposure is to public companies, the rest is to private sponsors

“Approximately 30% of our exposure in the energy portfolio is to public companies and approximately 45% have private equity sponsors. And the private equity firms we partner with have exceptionally strong experience in the industry and understand the cyclicality as opposed to generalist firms or younger, less experienced firms. Additionally, the remainder of our portfolio generally has private sponsors, very high net worth families that have been highly involved in the energy industry over the years.

People pivoted from gas to oil in ‘09

“ would say then if you looked at the entire portfolio, it was probably 60% gas in terms of the borrowing base collateral, 40% oil and you’ll recall the word pivot was used significantly following that. People were pivoting away from gas and they pivoted to oil. You’ll now start reading about people pivoting back away from oil ever so slightly.

We wont really know the impact to credit quality until Q3 or Q4

“One possible pattern over the course of the year is that there will be some shift from the qualitative into the quantitative part of the reserve, as we get financial information from the borrowers. But the — that process won’t be complete certainly by the end of Q1. We’d probably get the first real financials that began to show an impact sometime in Q3 — Q2 and I would expect even if prices don’t move at all, we’ll — we won’t have fully kind of seen the impact until maybe Q3-Q4. But again there may be some, there potentially will be some downgrades, but some of this will be absorbed potentially by a shift from the qualitative into the quantitative portion of the reserve. We just don’t know yet.

If prices stay low for a couple or three years then we’ll start to see some impairments

“If this goes on for — as Scott said, for an extended period of time, a couple of years, three years, where oil prices remain very low, there will almost undoubtedly, based on our sensitivity analysis be some additional increments to the provision related to that, and some [indiscernible] classified — more criticized and classified loans and it will begin to shift again toward the quantitative side is as we

4Q was strong for energy companies because everyone was using up their budget for the year

“he fourth quarter for many energy services companies was one of the strongest quarters in their recent history; and secondly for reserve based companies, most of our reserve base clients had very robust drilling budgets in 2014, and generally in the industry, they are drilling hard in the fourth quarter to drill up the budgets that they have.