Zions Bancorp. (ZION) finally faced analysts who were eager to hear management explain why the Salt Lake City company was the only bank to fail both of the government's stress tests.

The company's Tier 1 common capital ratio fell short of a minimum mandated by a March stress test required by the Dodd-Frank Act. The Fed also rejected Zions's capital plan as part of the Comprehensive Capital Analysis Review, or CCAR, on quantitative grounds.

Executives were peppered during a quarterly conference call with questions about resubmitting its capital plan to the Federal Reserve Board. Management discussed possible steps, such as raising capital or expanding its loan-syndication business.

The goal is to reduce the $55 billion-asset company's risk profile yet still allow its lenders to do their jobs. Executives seemed frustrated and perplexed by the stress test results.

"Our own models produced significantly different results," Harris Simmons, Zions' chairman and chief executive, said during Monday's conference call.

"We remain quite confident that, under an actual severely adverse economic environment and with no access to the capital markets, Zions would remain comfortably above the threshold of 5% Tier 1 common equity as a percentage of risk-weighted assets," he added.

Zions's Tier 1 common capital ratio fell to 3.6% under severely adverse conditions as part of a March stress test required by the Dodd-Frank Act. The Fed also rejected Zions' capital plan as part of the Comprehensive Capital Analysis Review, or CCAR, after the Tier 1 common capital ratio fell below the 5% minimum that was considered under a hypothetical severely adverse economic scenario.

"We are probably puzzled … by the magnitude of the drop in pretax, pre-provision net revenue," Doyle Arnold, Zions' chief financial officer, said during the call. "We don't have any real transparency into how they arrived at that number."

The Fed's models projected pretax, pre-provision net revenue that was lower than any amount that Zions' generated during the 2008 recession, Simmons added.

Before the Fed announced the results of the Dodd-Frank stress test, Zions had said it would resubmit its capital plan.

The new plan should benefit from Zions' sale of collateralized-debt obligations valued at nearly $1 billion. The CDOs that Zions sold were selected because they had the most risk of impairment under a severely adverse scenario, the highest risk weights or were barred by the Volcker Rule, Simmons said. Executives believe the sales will help Zions' new plan, which it should resubmit by the end of April.

Analysts also asked management about actions that would help boost Zions' capital position. Zions' original CCAR submission included raising $400 million in common equity. But that proposed capital raise was not binding and the resubmission could include something different, Simmons said.

Zions has also imposed concentration limits for loans, in part because of the severity of losses that were projected, especially in land development construction lending, Arnold said. Management is concerned about missing out on business so it is considering developing a more substantial syndications portfolio to originate and sell loans. Doing so would let the company "continue to serve customers while laying off the risk," Arnold added.

Zions recorded a $31 million pretax gain from the CDO sales during the first quarter. Overall, its earnings fell 14% from a year earlier, to $76 million, due in part to lower net interest income.

Zions' earnings were also a "little disappointing given the smaller reserve release versus what the company suggested in the past," Gary Tenner, an analyst at D.A. Davidson, said in an interview. The company recorded a negative provision of $610,000 compared to a negative provision of $29 million a year earlier.

Uncertainty over the stress test resubmission is likely to weigh on management and Zions' stock, Tenner added. Zions' shares have has depreciated more than 3% in the last month. "From a management prospective, this is taking a lot of attention that could be focused on strategy and other areas," he said.

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