Zions Bancorp.'s expense growth during the fourth quarter of 2016 led management to reduce incentive compensation, and executives said during the bank's Jan. 23 earnings call that they do not expect a significant financial impact from potential regulatory relief.
The bank reported fourth-quarter 2016 net income available to common shareholders of $125.0 million, or 60 cents per share, compared to $88.2 million, or 43 cents per share, in the fourth quarter of 2015. Full-year 2016 net income available to common shareholders, meanwhile, was $411.3 million, or $1.99 per share, compared with 2015's $246.6 million, or $1.20 per share.
Higher noninterest expenses during the quarter led Zions to reduce incentive compensation for its senior management team, executives said. Accelerated retirement benefits, elevated healthcare costs and moderate legal costs put pressure on management's efforts to control expenses, and the elevation during the quarter "directly" resulted in a $5 million reduction in planned management incentive compensation, said CFO Paul Burdiss.
One expense that could change with the new regulatory regime under President Donald Trump is the bank's annual participation in the Federal Reserve Board's Comprehensive Capital Analysis and Review and resolution planning process. With $63.24 billion in assets at the end of 2016, Zions would see a reduced regulatory burden if the threshold for 'systemically important financial institutions' was increased from $50 billion in assets to $250 billion, as has been proposed. But relief would be limited, given that the bulk of those expenses were incorporated into the bank when it built the infrastructure to run those processes; now, they are incrementally incurred. Regulatory relief would not be "a materially big ... change" but move the bank to a "maintenance mode" rather than "continued investment," one executive said.
The CCAR process does create annual uncertainty for the bank; Zions received a quantitative failure in 2014, which became a "nuclear event" internally, an executive said. However, the bank now runs itself around the CCAR test and targeted capital results, and would not dramatically change its risk appetite if it no longer participated in the annual Federal Reserve exercise.
"If we were not subject to CCAR, I don't think it's going to change our behavior in any material way, but it probably gives us one less thing to be concerned about," one executive said. "We don't think that the Federal Reserve's levels are really built for a regional bank like ours. We think we have a different balance sheet mix and we would very much like to be able to use our own models that would continue to have regulatory oversight to help us think about risk appetite and the tolerances we have."