Zions Grows Amid Regional Banking Rebound

While the financial sector has not roared back to pre-recession lending activity, it is making progress. Regional banks such as Zions Bancorporation (ZION) are picking up the pace amid a regional banking rebound as credit profiles improve across the country, especially at the local level.

The bank's financials are improving as the credit profiles of its clients do likewise. For the third quarter of 2011, the bank earned $65.2 million, or 35 cents a share, compared with a loss of $80.5 million, or 47 cents a share, a year earlier.

Bank executives say they were pleased with improvements to credit quality. "While loan demand softened somewhat for us compared to the prior quarter, we continued to experience growth in several categories as payoffs and paydowns in the construction portfolio resulted in a modest decline in the overall portfolio," bank Chairman and CEO Harris H. Simmons says.

"We expect continued improvement in credit quality in the near term despite the uncertain economic environment. We have observed continued competitive pricing pressures particularly with respect to larger commercial credits," Simmons adds.

Ratings agencies like the bank's results so far. Standard & Poor's analysts have said they expect net earnings to rise in 2012, although the bank carries a negative outlook.

"We think Zions has a good competitive market position in Utah, and to a lesser extent in Idaho, but much weaker market positions in the other states in which it operates," Standard & Poor's analysts write in a note on the company.

Zions has the third-largest deposit market share in Utah and the fourth-largest market share in Idaho, but fairly modest market shares in California, Texas, Arizona, Nevada, and Colorado, which collectively account for the majority of its assets.

"We think that the company's decentralized management and organizational structure could result in elevated business, operational, and credit risks," Standard and Poor's adds. Plus the bank is heavily exposed to the commercial real estate sector, Standard & Poor's analysts conclude.

Cautious optimism

Standard & Poor's is, however, viewing regional banks in general will cautious optimism. The pace of improvement in loan performance could slow in 2012 as lending won't grow in line with deposits, they warn.

Zions Bancorporation, meanwhile, saw a slew of upgrades in 201. Although in January of last year Jefferies downgraded the company's stock to hold from buy, in March, Stifel Nicolaus upgraded the stock to buy from hold.

In April, FBR Capital upgraded the bank to outperform from market perform while in August, RBC Capital Markets upgraded the bank to outperform from sector perform. In November, UBS initiated coverage at neutral.

The bank will release fourth quarter earnings on Jan. 23.