Welcome to the Zions Bancorporation Fourth Quarter 2014 earnings call. This call is being recorded. I will now turn the call over to James Abbott.

Thank you Jenny and good evening. We welcome you to this conference call to discuss the fourth quarter 2014 earnings. Our participants today will be Harris Simmons, Chairman and Chief Executive Officer; Doyle Arnold, Vice Chairman and Chief Financial Officer; Scott McLean, President; and Ed Schreiber, Chief Risk Officer and Michael Morris, Chief Credit Officer. I’d like to remind you that during this call we will be making forward-looking statements, although the actual results may differ materially. We encourage you to review the disclaimer in the press release dealing with forward-looking information, which applies equally to statements made in this call. A copy of the earnings release is available at zionsbancorporation.com. We intend to limit the length of this call to one hour, which will include time for you to ask questions. During the Q&A section, we ask you to limit your question to one primary and one related follow-up question to enable other participants to ask questions. With that, I will now turn the time over to Harris Simmons.

Thanks very much James and welcome to all of you who are on the call and those on the East Coast, we can only say we wish we had some of the snow issues you’re currently experiencing this evening here on our mountains. We could use it. Based on other calls we’ve listened to, we expect that a major focus at this earnings call will be on our energy portfolio and we’ve included a significant amount of information in the earnings release on that topic. 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. We’ve asked Scott McLean our President to add further color in our prepared remarks here in a few minutes. But before we turn to that discussion, I wanted to make a few comments about earnings for 2014 and the progress on some of our initiatives. The 2014 results improved from the prior year with net income applicable to common shareholders rising to $333 million from $294 million a year ago. We experienced relatively stable net interest income; despite two significant headwinds, the winding down of the FDIC supported loan portfolio and pricing pressure on new loans. 2015 net interest income should be the first year of increasing net interest income since 2008, which is very encouraging to us. Fee income growth has not met our expectations, in part due to a slower pace of mortgage originations than was originally anticipated.…

Thank you, Harris. Good evening everyone, as noted in the release, the net income available to common for the full year is $333 million or a $1.71 per diluted common share, compared to $294 million or a $1.58 per diluted common share in 2013. For the fourth quarter we posted net earnings applicable to common shareholders of $73.2 million, which was $0.36 per diluted common share, compares to net earnings applicable to common of $79.1 million or $0.40 per diluted share for the third quarter. The biggest swing factor by far in the fourth quarter compared to the third was a provision expense which increased $84 million was the amount on the change, from a negative $71 million to a positive $13 million. Much of the release in the allowance for credit losses in the third quarter was due to the sale of several $100 million construction loans in that quarter, which generally carry a high reserve ratio. But for the substantial decline in energy prices in the fourth quarter, we would have had another modest reserve release in the fourth quarter as we've previously indicated, because underlying credit quality metrics or statistics continue to improve during the quarter. I’ll move on now to a brief review of some of the key revenue drivers. Average loans held for investment increased $278 million compared to third quarter and end of period balances increased $324 million. The pattern in this quarter was a little different than fourth quarter patterns for the last several years in that it occurred -- the growth occurred fairly steadily throughout the quarter and we did not see the sharp acceleration there in loan growth in the final weeks near the end of the quarter that we have in recent previous years. So that pickup at the end…

Great. Thanks, Doyle. I am happy to add some additional color of what we already put in the press release regarding energy lending as the way to reduce the uncertainty that I think comes from a lack of information and understanding when you go through a cycle like this. As Harris indicated earlier, we believe that our disciplined underwriting, strong capital and loan loss reserve positions position us well to whether this current period of oil and gas price volatility. I want to try to highlight four key elements that should be helpful to you as you think about our exposure. First, as it regards historical losses on energy loans, they have been limited to approximately 1% in our peak year of 2009. Importantly, over the last seven years, cumulative losses were approximately 3% of the balance of loans outstanding entering that period. Relative to the loan portfolio, these charges offs -- relative to the overall loan portfolio of the Company, these charge offs have represented a very small number of basis points in our net charge off ratio. Many of you will recall though that the price of oil dropped significantly, starting in the spring of 2008 and then rebounded within about 12 to 15 month period. And no one knows if oil prices will rebound from the current 50% plus decline in the last few months. However though 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…

Thank you, Scott. Next Doyle will provide the financial outlook and then we will take your questions. Doyle?

Thanks James and thank you and Scott. Outlook is for the forward four quarters, relative to our most recent quarter. It’s not meant to be a quarter-by-quarter prognostication, in kind of keeping with our past practice. Regarding loan growth, we’re going to maintain our slight to moderate growth outlook for loans. This does factor in the effects of what could be a slowing Texas market for reasons we’ve been talking about, but offset by strengthening economies in other parts of our footprint. Regarding net interest income, we expect that to increase slightly due to continued loan growth and modest securities purchases, although there will be pressure in the first quarter due to too fewer days in the quarter compared to the fourth quarter. So just bear that in mind. So I just made a liar out of myself. I did talk about a specific quarter rather than the full year but don’t be alarmed. We expect to redeem additional very high cost debt, subordinated debt in the third and fourth quarters, which will reduce interest expense late in this year. You won’t even see the full benefit of that in fourth quarter, but you will through the year 2016. Regarding non-interest income we expect the core components, such as service fees to continue a modest upward trend as we continue to strive for organic loan growth and fee income. On the non-interest expense side, our outlook for non-interest expense remains about the same for 2015, that is $405 million, $410 million per quarter, in other words kind of keeping overall expenses flat for another year or nearly so as the technology projects experience their expected peak year of incremental spend. Regarding provision expense, that’s probably the biggest change from 2014. At the current time we do not expect additional reserve releases in 2015. We do expect the provision will be positive for the year and likely for each quarter, driven by net charge-offs, loan growth and a possible increase in the adversely created loans in the energy book. Net charge-offs for 2014 were approximately $42 million, which is a pretty low rate, even though it included couple of special situations. Nevertheless, with energy prices at current levels, NCOs could increase somewhat from that level, particularly later in the year as we get updated financials the take into account the full impact of what’s been going on in the last couple of months with regard to energy prices. With that, we’ll turn it back to James and our operator to open the line for your questions.

Thanks, Jamie, if you would open up the line, that’d be great.

[Operator Instructions] The first question comes from John Pancari from Evercore ISI.

It’s actually Steve Moss for John. Just want to start off with the energy portfolio. Kind of wondering how much do you guys have in terms of reserves allocated to the portfolio?

The allowance for credit losses to the portfolio. It’s in 1.75% to 2% area and Doyle, maybe do you want elaborate on why it’s not a precise number?

Well, it’s not a precise number because you got to make some assumptions, particularly about how we allocate the qualitative portion of the reserve and for us the qualitative portion is a pretty significant component of the overall reserves, something on the order of about 30% of the total. But if you’re thinking 1.75 to 1.8, maybe a bit more, that’s probably the right area. And that takes into account something about the qualitative addition of $25 million roughly that we mentioned in the press release, specifically related to energy.

Okay and then in terms of the -- you're looking the portfolio today versus stay back ‘08, ’09. Is there any structural difference? Do you more service loans in the portfolio today versus backbench? Just kind of wondering what are the key differences. I know you mentioned gas before?

I would say it’s fundamentally -- this is Scott McLean. It’s fundamentally the same mix. We may actually have a little more of midstream today than we did then, but it’s fundamentally the same mix.

Do you want to talk about junior liens back then versus maybe today?

Yes, back then we had -- we maybe had three or four junior liens in the portfolio, going into the ‘08, ‘09 downturn. I would say we probably have four or five they were small. And we have zero today. And we also, back -- going into that downturn, we had a few more, not many, but we had a few loans where there were large unsecured pieces behind us, senior unsecured that were issued in the public market or large junior subordinated pieces, where total leverage was higher and many of those worked just fine, but some did not. And so really some of the most important part of lessons learned coming out of the downturn were changes we made to not do any second lien financing and to generally avoid situations where total leverage is well beyond the bank senior borrowing base piece.

And one other change that will be applicable to the end of the industry as a whole Scott is that people in 2007 and ‘08 or ‘06, ‘07 year were drilling for dry gas only. Everything is much more balanced now, for better or for worse, but you’re getting some of each.

Yes, I 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.

And for those you didn’t follow that area, there was -- because gas did just well over $8 close to $9, I think per MCF and it fell down into the $2.5 to $4 range.

It’s stayed there.

It stayed in that range. So that’s different in the production mix.

Okay that’s helpful. And then I guess one last question in terms of that price of credit. Are we seeing now, given that you’re going to add to provision reserves going forward, has loan loss reserve bottomed here?

You mean the total dollars in reserve? I don’t want to go precisely, because the provision may or may not fully cover charge-offs in any given quarter, but I think the year -- as we said all year last year, that the year of substantial reserve releases or negative provisions has probably come to an end for the time being.

The next question comes from Steven Alexopoulos from JPMorgan.

I wanted to actually start on capital, looking at where you ended year, 12% tier one common. You obviously have a ton of capital. With that said you just raised common and now you’re talking about quite a few certainties in the energy book. Is it too soon for you to consider asking for even a modest return of capital in the upcoming CCAR beyond, I don’t know, maybe a token dividend increase?

Well Steve the upcoming CCAR was already submitted. So whatever we submitted, we submitted. And I don’t think we want to comment on what we submitted till we get the -- until [indiscernible] comes out of Washington. But I think -- I will note that we did -- we have said consistently that we’re likely to remain somewhat cautious in doing major capital changes or asking for too much, given the closeness on the resubmission last year. We’d like to get one more good read on how -- not only how we assess our risk --we think we’re doing a very good job there -- but also how the federal reserve kind of assesses our risk. But we would agree with you. We’ve got really strong capital ratios, both tier one common and also other -- when you add other tier one in, we’ve got among the strong -- probably the strongest capital ratio of any CCAR institution down there and certainly in a bank like one.

That’s fair. Maybe to follow up, of the $3 billion, the energy exposure that you outlined, just to slice it a different way; what’s the split between share national credit participations for larger energy companies and direct loans to smaller companies?

Well the exact percentage I need to get for you. On the reserve base side, it’s a much higher degree of shared national credits, because those credits are larger. We generally do not participate -- we don’t originate a lot of $5 million and $10 million reserve base loans, because the collateral pools are generally much more limited and they are higher risk because of that. So generally speaking, the transactions ran on a reserve base side or anywhere from $20 million $25 million up to hundreds of millions of dollars, syndicated transactions. So the percentage though would be pretty significant, because the dollar amounts are larger. And the folks that we’re participating with, when we don’t lead, we lead about 25% of the time plus or minus where we are considered to lead. The rest of the time, we are with a small number of highly experienced underwriters, that you would know them if I named them. And it’s not -- there’s not 10 of them. There’s about four or five that we work with. And so in that sense, we think that gives us strength. On the energy services side, the percentage of syndicated transactions there would be much lower. And although -- you do a see a lot of club financing that goes on there. Even for $20 million and $30 million transactions you’ll see -- it’s not unusual to see two banks in a $20 million to $30 million deal as a risk mitigation tool.

And do you just have the dollars of shared national credits that are in the energy sector? Just what that balance is?

Yes we might be able to get that for you, while we’re on the call, but I would -- I can't quote it off the top of my head.

It’s not -- we’ll try to get back you.

Your next question comes from Dave Rochester from Deutsche Bank.

Just on credit again. I was wondering, if there were any other reserve impacts on the energy book this quarter other than that $25 million qualitative adjustment? And then given your comment on the potential for downgrades to come from the rebalancing, should we expect that rebalancing is going to be fully reflected in the reserve by the end of 2Q, would you think?

Well two parts to the question. As we mentioned in the press release, we did attempt to look at the portfolio, the actual credits during the quarter and even into late December. Difficult to do a full re-underwriting and certainly not a full reengineering of the reserves and what not, but on that -- based on that, there were a few downgrades, a couple to criticize our classified status and a few more still within a pass grade, but a lower pass grade. That did have some impact on the reserve, maybe just a few million dollars, but not -- the bigger part was the qualitative adjustment we made, because based on various sensitivity analysis, we became convinced that there very likely were incurred losses there that just we couldn’t fully figure it out by the end of the quarter in terms of a traditional analysis, that what we think -- which we think will show up. 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.

And what level of oil prices do you use for your rebalancing analysis? Are you using some kind of three month average, or how do you project those out as a factor in that rebalancing?

We use the -- basically the NYMEX strip and so…

Which is a WTI West Texas Intermediate crude forward price curve.

Right. And so the current price that you see is you have to look at the forward curve to really see how we evaluate it, because the production obviously takes place, depending on the reserves over a three month to 15 year basis.

That curve today would start with -- today’s spot price and then it gradually gets up into the 50s over the next couple of years.

That's correct. And I think the other thing that's important to know is that when you look at historical oil prices as an example; when the price of oil was a 140 in early 2008, our borrowing base -- our price deck was in the sort of low 80 range; and if you look at the underwriting we were doing throughout 2010, '11 and '12, our price deck was generally in the $70 to $80 range. So that's important to know. It's -- we never used a price deck that was $90 or a $100, even when the price was there.

And just one last one. You had mentioned you're expecting loan growth in 2015, generally in line with what you had in 2014, that Texas would be slower. We're just wondering, are you assuming a flat energy book or some run-off there?

Some run-off there. There's definitely some.

The next question comes from Ken Zerbe from Morgan Stanley.

Along the same lines, I guess as the last question. In terms of the indirect impact of low oil on the entire Amegy book, what's the likelihood that you see such a contraction in CapEx, in drilling and it just has a carryover effect on jobs, on sort of all the ancillary businesses in the broader Texas economy, that you end up seeing a fairly meaningful decline in your total Amegy loan portfolio?

Let me -- why don’t I take that also. It's a logical question to ask about sort of the ripple effects of all this, and I think the most important thing to start with is that the real estate exposure in the Texas Bank was about $3.6 billion in outstanding's in 2008. At the end of 2014 it was $2.4 billion. So the exposure to land A and B was $989 million in 2008. It's a $149 million today. So our total real estate exposure is significantly less, our land exposure is almost negligible. And so real-estate is the natural place where oil and gas price volatility turns when it has a ripple effect. The other comment I would make to you -- I'm not about to try to explain to you that the Houston economy and Texas will be immune to this. There will absolutely be an impact on those economies. But there is one secular change that will be a strength for Houston and Texas this time around, compared to '08, '09 and any other period of decline, and that is the benefit of low natural gas prices. There -- if you look at the announcements that have been made for major petrochemical expansions all along the Houston ship channel, it is billions and billions of dollars of construction that is all based on natural gas prices remaining low, which I think most people generally believe they will. So that is driving -- is one of the drivers of the economy there right now and will certainly cushion from this oil price volatility we're seeing today.

Okay. And then just one other question. In terms of -- I guess if we look a year from now right, I now understand you built qualitative reserves on energy. Barring $10 a barrel oil, where could you be wrong? Where could we end up 12 months from now with meaningfully higher losses on the energy portfolio? What would be the drivers of that?

Well I would say that -- well first of all, it's impossible to know, but secondly it's going to have to be an 18 to 36 month period I think for losses that would exceed our historical experience. The losses we've had historically have been modest relative to the corporate charge-off ratio and our capital. They're almost negligible. And you would have to have 24 to 36 months of extended decline. Because again remember most borrowing bases are generally 50% to 60% gas and some are -- many are 60% oil, okay. But there is always a balance, almost always a balance of some kind. And so we’ve been in an extended period of low gas prices. So when you think about our exposure, you need to think about kind of 50% to 60% of the portfolio that is really being exposed to this volatility, because the part that's going to expose the gas has been living with a low gas price for a long time.

I think I would add that a $25 million qualitative addition to the reserve is kind of under an accounting or GAAP incurred loss model, what we could reasonably assert is appropriate today. 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 -- as Warren Buffett once said, when the time goes out, we see who has been swimming without a bathing suit in the portfolio, and the few of those will show up over time. But bear in mind that even several times that $25 million spread out over a couple of years would equate to 10 to 15 basis points of charge-offs on the reserve -- on the portfolio as a whole on an annualized basis.

On an annualized basis. And other thing just to keep in mind is that this is 8% of the portfolio. So there is 92% of the portfolio that stands to benefit in some fashion, particularly in the California markets and so forth that have real estate exposure with 10 year treasury where it is. That will support the valuations of those properties quite nicely. I think we need to move to the next question. Thanks Ken, really appreciate your.

I think we’re going to let us to a one question and may be one quick follow-up. We have quite a few people still waiting and we'd like to try to give everybody at least one shot.

The next question comes from Jennifer Demba from SunTrust Robinson Humphrey.

A question on energy for Scott. Scott, in terms of the shared -- the energy shared national credits that you have where you are not an agent, what is your leeway in terms of operating those credits more adversely than an agent would or sooner [indiscernible] if at all?

Jennifer, thank you and let me -- as I answer that, I want to punctuate one of the questions that was asked earlier. I didn’t know off the top of my head the percentages, but we did in fact have it right here. So the percentage of shared national credits in the upstream portfolio, the reserve based portfolio is 80%. I said it was a large percentage, and it in fact is. In the midstream portfolio, it's 85% shared national credit. Those are always very large transactions. And in the oilfield service sector it's 50% shared national credits. And to answer your question…

And those are both, ones we lead and ones we participate. That’s a whole thing.

Yes. And to answer your question, generally speaking on shared national credits, we are right in sync with where the agent is if we’re not the agent and as I said, it is really important to understand that the number of agents we deal with is very small. So we’re not being exposed to just the random experience of random players in the market and there are a lot of those that do not have the experience that we have or these other major underwriters have. The other thing I would comment on is that as you know annually the -- our regulators review all shared national credits, and rarely do we have a difference in grade from what the regulators would have thought or the agent would have thought. So it just -- it doesn’t really happen that often.

The next question comes from Joe Morford from RBC Capital Markets.

I'll actually start with my quick follow-up, and that would just be on the energy portfolio. You did see little over $200 million of growth and nearly 4% in the quarter. Too much of that was just draws on existing lines or perhaps some growth you wouldn’t -- you’d rather not see and do you expect much more of that as the year progresses?

I would be speculating to a certain degree, but generally speaking I would say it was probably more related to draws, because the 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. So, I would guess its more utilization than absolute new transactions.

Joe, we -- on page three of the release, we kind of give you a breakdown of that. You can see in the table that total commitments increased 224 million. The unfunded portion or unused portion increased $100 million. So the funding has increased a bit disproportionately there.

The other quick question was just on -- longer term on the efficiency ratio and depending on how you want to back out certain non-recurring stuff, you'd come in with say a level around 70% currently. And where do you see that going longer term, particularly as you finish -- complete the system’s conversion and perhaps see a little higher rate environment too?

Yes. This is Harris. I'll take that Joe. There are obviously a variety of factors that go into that, some of which are in the denominator in the revenue piece, the most significant of which is the asset sensitivity we have, and that contributes -- roughly as I look at kind of the size of some of our peer’s MBS portfolios, over 5 percentage points to the ratio. My expectation is that we get this down into the low 60s if you adjust for that piece of it. So in a little more normal rate environment I think that’s achievable. And ultimately I would hope that we can drive it beyond that, but I think we’re going to have to get through these systems projects to do that. The systems projects -- in 2015 we expect will contribute about $37 million in incremental spend.

Compared to about $26 million.

Compared to about $26 million in 2014, so that still -- that's the way on it. But if I adjust for that, and if I adjust for the asset sensitivity, my expectation is that we get it down into kind of the low 60s.

The next question comes from Ken Usdin from Jefferies.

Just a follow up on expenses and things you can control. So I wanted to just ask, as you think about that absolute dollar increase that you just mentioned this year; A, do you have a better line of sight though? Could we start getting it below this 405 - 410 as you think about next year? And underneath that, my follow up would just be, unfortunately we’re going to lose this benefit that we have had from provision this year. So anything else that you guys are thinking about as far as underlying rationalization? I know you guys had talked a little bit about [indiscernible] et cetera. So just in terms of what you can control, any updated thoughts on when you can see that cascading, and other programs that you might be thinking about?

Sure. Well, we are actually looking at every line item in the expense portion of the P&L, and have in fact taken some steps that will -- I would expect will offset certainly the incremental increase in the project spend this coming year. But they are in areas like travel and entertainment and some of the consulting expenses, et cetera, et cetera. Going out a little further, we know that there are going to be some opportunities that come to us as we complete some of these systems projects that will allow us to consolidate some of the back office functions that have not been possible to consolidate until we get through some of the systems work. And I’d be getting the cart the before the horse to start to put numbers to those. But I would expect that during this year we’ll be giving you a little more information about some of the targets we have.

The next question comes from Brad Milsaps from Sandler O'Neill.

Doyle, I know you guys call in the release that deposit growth is typically really strong in the fourth quarter. This quarter looked maybe even stronger than it has been for the last couple of years. Anything in particular driving that aside from seasonality, and how does that did and/or do you expect a lot of it to exit maybe the first part of the year? Just trying to get a better sense of balance sheet size and how you’re thinking about managing liquidity?

That growth was -- you're correct. It was a bit stronger even than the usual seasonal strength. And I don’t think there is any one major thing that we can point to. It was fairly wide spread and kind of looks like for whatever reason customers wanting to show lots of liquidity on their balance sheet going into year end. We do expect some of that to probably run off. The growth was so strong, I'm not sure where we’ll end up, but as people -- we usually see another uptick right around the first few weeks in April, as people start building balances for the estimated tax payments and then it comes down. But that one was hard to figure. And it did drive the overall size of the whole balance sheet this quarter.

Sure. And just a follow up. I know you talk about the CMO purchase. With rates where they are, are you -- would you back off some of that and stick with just keeping it very, very liquid in short term or what are your thoughts there?

Well, we don’t really know. We have been -- if you look at the amount of cash we have and the rate at which we’ve been buying, it would take quite a while to convert all of that cash into -- I would say not CMOs, it’s RMBS really; and part of agency and relatively pointed out, if you kind of look at the map, we’re trying to keep the duration, even of what we’re buying relatively short as RMBS securities go so as not to give up too much of the asset sensitivity too quick. But we haven’t decided how long and how to continue that program, but at the moment it is ongoing.

The next question comes from Paul Miller from FBR.

Good afternoon guys. It’s actually Thomas on for Paul. One quick question. On your sort of guidance that margin may sort of stay flat, mostly driven by reduced debt cost going forward, are there any -- we cover a couple of other companies that are sort of baking in an assumption for higher rates in the back half of ‘15. Is there any assumption on the asset side there?

No, we did not. We did not try to forecast the rise in rates in the later part of the year. If that occurs, it’s probably a benefit to the margin that’s outside the guidance.

Okay, that’s very helpful.

That addressed what you said? Okay.

Yes, exactly that’s all. I'll let someone else out there.

Again, I think we need to clarify. We actually do expect net interest income to increase during 2015. So we didn’t say flat. We do --

Well right, but margin would be stable and then you'd get a pick in net interest income from --

Right, from loan growth.

Yes, exactly.

The securities purchases, yes.

The next question comes from Kevin Barker from Compass Point.

I was hoping you can expand upon some of the comments you made in December regarding potential reduction of preferred stock or in order to reduce the capital intensity on your balance sheet.

I think for the time being I will just note that going into 2014 we had a pretty high level of debt and we took actions to reduce that. Going into ‘15 we had probably the third highest, maybe fourth -- pretty close there, Tier 1 common ratio among the bank wide CCAR institutions and when you add preferred and non-common tier 1, we're by a margin the highest. So over time we’ll be looking at that preferred stock layer. That is subject to CCAR and unlike arguably senior debt, maybe a little more flexibility there. So I’ll just leave it at we have more pure on common tier 1 [ph] than relative to our size in any other institution like us and it’s something we’ll be taking a look at.

The next question comes from Geoffrey Elliott from Autonomous Research.

In terms of the $25 million oil field on energy, I know you mentioned your constrained by GAAP accounting, that you're having some sensitivities and came off with that number. Could you give us a bit more detail on how you've reached the $25 million and why is $25 million, why it's not $50 million, why it's not $10 million? How are you kind of able to hold in on a particular number there?

Well, if there were that much science, it probably wouldn’t be qualitative. It would be in the quantitative part of the reserve.

Maybe [indiscernible], why can you do 25, thus you can't give a bigger number because the accountants wouldn’t be happy with it. What are they looking at?

We look at a variety of things. We did look at kind of individual credits, we did. We ran some kind of high level sensitivities on the portfolio; what if energy prices stayed down at this level for a very extended period of time. But that’s kind of getting at -- that begins to shade into an expected loss thing as I mentioned. Going back to an earlier question about capital and what not, I would just note, we stressed the energy portfolio pretty hard in our CCAR submission. It just happens that we decided back in late September to use shock oil down to $50 a barrel in our CCAR submission and we shocked the mining employment, which was another driver of our models pretty hard. So we have the benefit of being able to look at kind of in the CCAR what might those -- the energy component of the overall highly stressed losses be if they extended for a very long period of time. But again under GAAP you can’t do expected loss. You have to do incurred loss and almost by definition. That is something less than expected loss, projecting future economic conditions. And so at the end of the day it does become judgmental. It is a qualitative portion. It’s not quantitative. So what we’ve booked in the reserve is less than what might eventually happen if, if, if, if, if, and -- but it’s what we felt was reasonable, prudent under an incurred loss accounting structure today.

And it does -- there is some framework around even how we did the qualitative piece.

Yes.

So we have some factors that we adjusted and this is what falls out of it.

Yes, there is a whole list of criteria that we utilized in the qualitative assessment that drive a quantitative outcome in terms of creating a qualitative number, but it’s -- but there is a great deal of judgment that goes into that.

The next question comes from Marty Mosby from Vining-Sparks.

Just a quick follow-up too. You talked about the expense increase of about $37 million from the overall systems conversions and the back office technology. Qualitatively how has the project being going, and just was curious, are you hitting your milestones or what surprises you might have run into so far?

We completed accounting -- chart of accounts conversion on time and slightly under budget just last weekend and our controller is standing up and walking around the table taking a victory lap as we tell you this, but I’ll let -- the other projects are proceeding reasonable well. Scott do you want to?

Sure, and first let me just clarify, and Harris noted it, but the $37 million estimate he referenced for 2015, incremental spending on these projects would compare to about $24 million to $25 million in 2014. So it’s an increase there, not an absolute number.

We use the term incremental a little differently than people on the phone might be. So we’re talking -- these are expenses that are outside of our normal employee -- that we're spending on consulting services and other processes.

So we have a lot of internal employees who are working would otherwise be doing other kinds of project work, who have been assigned to this task. And so the incremental amount we’re talking about is incremental to kind of the normal run rate for those internal employees.

And maybe said just a little differently or to add to that, just in terms of absolute dollar amounts, about $14 million was spent in the fourth quarter, all in on the systems and we expect the spend at similar amount throughout 2015 quarter by quarter. There is some fluctuation obviously but that’s about the amount.

And then just qualitatively about progress, on the other systems outside accounting?

It’s not that.

So again the chart of the gas project was right on time. The original date was that we would convert on January 20th, and that’s when we converted. There are several other phases to that, but that was the most significant credit lead, which we were [indiscernible] for our frontend loan underwriting origination system, all the way to the backend has been implemented in our Arizona and Nevada subsidiaries, and will be implemented in Colorado in the next 30 days; and Amegy in the early spring with California and Zions First National Bank following in the summer, early fall. So it is right on track and it’s very much living up to the expectations that we had hoped. So that’s going well. And our enterprise loan operations initiative, which is basically converting from 15 different loan operations sites, that used multiple different incidences of our free loan systems, they will be converting to two loan operations centers, fundamentally using the same instances of the loan centers over time -- the loan systems over time. And that is underway and on track, and that will be completed by the end of this year for the most part. But the majority of it will be completely by the mid to late fall. So it’s progressing very nicely. And the big core operating systems, there are three releases. The first release is our retail loan system. It comes in the second quarter of ’16. The second release is our commercial loan portion of that system. It will come in 2017, early ’17. And then the deposits portion of the system will come in 2018, early in the year. But it’s all going well and we’re actively working on as well the efficiencies and cost savings that we anticipate from this significant simplification of our back office.

Okay and I think we’ll take our last question here.

The final question comes from John Moran from Macquarie.

Just a quick on construction and land development, I just noticed that the balances were up in the quarter. And after obviously last quarter you guys had taken some moves to kind of to mitigate risk. With CCAR submitted, is there more willingness, ability, desire to kind of grow that book, or is this quarter kind of one-off? And then maybe an update on -- I know that you were working on some syndication capability there. If you have any update there?

The growth on balances this quarter is a result of commitments made some quarters ago. They don’t just happen. We took a lot of action to reduce commitments in the second and third quarters last year. The concentration limits that we've put in place will allow only very modest growth in that category of loan going forward. It was not -- it was a won and done in the sense of just a major reduction from where we were. It was not -- but ongoing to have growth -- it's not going to snap right back. It was not just a get it down for September 30th and then only-only income free do whatever you want. It will be constrained to a lower level of growth going forward.

I’ll just note it's about 5% of total loans, and that’s less in a quarter or what it was at peak. And it’s not going anywhere close to even halfway where it was at the peak. There’s some room for a little bit of growth there, but it’s going to be reasonably constrained.

Okay. Thank you very much for all of your questions today. We appreciate them and hopefully this has been helpful for you. I’ll be available to take questions or follow up questions throughout the week. And I will see you at our conference sometime soon in this quarter. Thanks so much.

Thank you all very much.

Thank you.