Zions Bancorporation is down 3% in trading today as WTI crude falls to just $48 per barrel (Brent crude is at $51), and there are serious concerns that it will have to stop releasing loan loss reserves, if not build them back up a bit, cutting off a major driver of recent growth.

“We recognize that there are many factors in the loan loss reserve calculation but question if ZION can continue to release reserves in light of the potential risk within its energy portfolio,” write Sterne Agee analysts Terry McEvoy and Austin Nicholas, who rate Zions as Neutral.

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Zions has planned for 8 quarters of mid-$50 oil

Zions has released nearly $200 million from its loan loss reserves over the last year, leaving it with $689 million still a healthy 1.7% of total loans. But the bank also has $3.1 billion in energy-related loans that are now at risk as oil prices continue to drop. This isn’t a new concern, but every time oil prices reach a new low investors have to reassess their position on Zions as well.

During last month’s earnings call Zions said that eight straight quarters of oil in the mid-$50s would require a modest increase to current reserves. A month ago that probably seemed like a very exacting standard, but as that scenario becomes more likely (or at least plausible) investors have to wonder if the bank can go ahead with releasing additional reserves this quarter as planned.

Zions Bancorporation

Could Zions become a value stock?

When McEvoy and Nicholas released their report earlier today Zions was still above $27, which they said limited its downside because it has a tangible book value of $26. As of this writing the stock is at $26.39, and volume has been growing for the last few days as the price has continued to drop. With the stock price so close to book value, it could be worth watching in the days ahead to see if overly pessimistic sentiment turns it into a value stock. As always, you’ll want to make sure that you agree with their assessment that $26 is reasonable minimum, and wait for prices to give you a decent margin of safety beyond that, but if oil prices fall further it could be worth keeping an eye on Zions’ stock price as well.

Zions Bancorporation