Zions Bancorporation Reports Earnings Of $0.34 Per Diluted Common Share For Third Quarter 2012

SALT LAKE CITY, Oct. 22, 2012 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported third quarter net earnings applicable to common shareholders of $62.3 million or $0.34 per diluted common share, compared to $55.2 million or $0.30 per diluted share for the second quarter of 2012.

Adjusted for the noncash effects in the third quarter of (1) the discount amortization on conversion of subordinated debt and additional accretion, net of expense, on acquired FDIC-supported loans ($6.3 million, $0.03 per share), and (2) the remaining discount amortization for the $700 million redemption of Troubled Asset Relief Program ("TARP") preferred stock ($16.6 million, $0.09 per share), net earnings were $85.2 million or $0.46 per diluted share for the third quarter of 2012, compared to $72.9 million or $0.40 per diluted share for the second quarter of 2012.

Third Quarter 2012 Highlights

  • Loans and leases, excluding FDIC-supported loans, increased $351 million, or an annualized 3.9%, to $36.6 billion at September 30, 2012.
  • Net interest income increased to $444 million from $432 million in the second quarter; core net interest income declined slightly to $439 million from $444 million in the second quarter.
  • Both net loan and lease charge-offs and nonperforming lending-related assets declined 11%, as credit quality continues to improve.
  • Tangible common equity per common share improved to $20.24 from $19.65 in the second quarter.
  • The Company successfully completed the redemption of its TARP preferred stock.

"We are pleased with the accomplishments in the third quarter, including stronger loan growth and the final redemption of TARP funds," said Harris H. Simmons, chairman and chief executive officer. "Regarding loan growth, we currently expect stronger loan balances in the fourth quarter and in 2013," continued Mr. Simmons. "We are also pleased with the continued strong improvement in credit quality, including a strong improvement in nonperforming assets and net charge-offs compared to the prior quarter."

Loans

Loans and leases, excluding FDIC-supported loans, increased $351 million on a net basis to $36.6 billion at September 30, 2012, compared to $36.2 billion at June 30, 2012. The increases were predominantly in commercial and industrial, 1-4 family residential, and term commercial real estate loans and were widespread geographically. Decreases of $285 million in commercial owner occupied and construction and land development loans partially offset increases in other loan categories. Average loans and leases, excluding FDIC-supported loans, were $36.5 billion during the third quarter of 2012, compared to $36.1 billion during the second quarter of 2012.

Deposits

Average total deposits for the third quarter of 2012 increased $535 million, or 1.2% (5.0% annualized), to $43.5 billion, compared to $42.9 billion for the second quarter of 2012. The increase resulted from a higher level of average noninterest-bearing demand deposits, primarily in nonpersonal accounts, for the third quarter of 2012, which were $16.8 billion compared to $16.2 billion for the second quarter of 2012. The ratio of loans to deposits was 84.9% at September 30, 2012, compared to 85.4% at June 30, 2012.

Debt and Shareholders' Equity

As previously reported, on September 26, 2012, the Company redeemed the remaining $700 million of TARP preferred stock pursuant to its Capital Plan submitted to the Federal Reserve in January 2012. The increase in the preferred stock dividend this quarter primarily resulted from the remaining discount amortization related to warrants issued in conjunction with the TARP preferred stock.

As previously announced, effective September 17, 2012, approximately $5.4 million of convertible subordinated debt was converted into the Company's Series C preferred stock. Accelerated discount amortization on the converted debt increased interest expense by a pretax noncash amount of approximately $2.0 million ($1.6 million after-tax) in the third quarter of 2012, compared to $16.2 million ($13.2 million after-tax) in the second quarter of 2012.

Accumulated other comprehensive income (loss) improved by approximately $41 million, primarily due to fair value increases in CDO investment securities.

The tangible common equity ratio was 7.17% at September 30, 2012, compared to 6.91% at June 30, 2012. The estimated common equity tier 1 capital ratio was 9.84% at September 30, 2012, compared to 9.78% at June 30, 2012. 

Net Interest Income

Net interest income increased 2.8% to $444 million for the third quarter of 2012, compared to $432 million for the second quarter of 2012. Core net interest income, adjusted for the discount amortization on convertible subordinated debt and accretion on acquired loans, was approximately $439 million for the third quarter of 2012, compared to $444 million for the second quarter of 2012.

The net interest margin increased to 3.63% in the third quarter of 2012, compared to 3.62% in the second quarter of 2012. The core net interest margin decreased 12 basis points to 3.60% in the third quarter, compared to 3.72% in the second quarter.  The decreases in the core net interest income and margin were due primarily to reduced yields on loans and investment securities attributable to rate resets; on these assets, the initial rate was fixed for a period of time (typically five years) and the current benchmark index rate is significantly lower than it was at the time the assets were originated.  Similarly, maturing loans are being replaced at tighter credit spreads. 

Noninterest Income

Noninterest income for the third quarter of 2012 was $119.2 million, compared to $123.0 million for the second quarter of 2012. The decrease was primarily due to lower dividends and other investment income in the third quarter compared to higher levels recognized in the second quarter.  Other less volatile sources of noninterest income, such as various service charges on deposits and loans, were relatively stable compared to the second quarter.

CDO Investment Securities

During the third quarter of 2012, the Company recognized credit-related other-than-temporary impairment ("OTTI") on collateralized debt obligations ("CDOs") of $2.7 million or $0.01 per diluted share, compared to $7.3 million or $0.02 per diluted share during the second quarter of 2012. OTTI this quarter was due primarily to the impact of prepayments on the value of junior CDO tranches. Gains resulting from cash principal payments on CDOs previously written down, amounting to $3.0 million, exceeded OTTI during the third quarter of 2012.

The following table stratifies the CDOs into performing tranches without credit impairment and nonperforming tranches at September 30, 2012:

 



September 30, 2012











Net unrealized losses recognized in AOCI 1


Weighted average discount rate 2


% of carrying value to par

(Amounts in millions)

 


No. of

tranches


Par

amount


Amortized

cost


Carrying

value



September 30,
2012


June 30,
2012


Change

Performing CDOs


















Predominantly bank CDOs


30


$

887


$

792


$

637


$

(155)


5.34

%


72

%


63

%


9

%

Insurance-only CDOs


21


450


444


322


(122)


8.51

%


72

%


73

%


(1)

%

Other CDOs


7


79


68


62


(6)


7.29

%


78

%


76

%


2

%

Total performing CDOs


58


1,416


1,304


1,021


(283)


6.46

%


72

%


67

%


5

%



















Nonperforming CDOs 3


















CDOs deferring interest, but never credit impaired


3


72


72


19


(53)


13.69

%


26

%


29

%


(3)

%

CDOs credit impaired prior to last 12 months


32


593


437


128


(309)


13.44

%


22

%


23

%


(1)

%

CDOs credit impaired during last 12 months


23


444


275


63


(212)


14.84

%


14

%


16

%


(2)

%

Total nonperforming CDOs


58


1,109


784


210


(574)


14.02

%


19

%


21

%


(2)

%



















Total CDOs


116


$

2,525


$

2,088


$

1,231


$

(857)


9.78

%


49

%


47

%


2

%

 

1 Accumulated other comprehensive income, amounts presented are pretax.

2 Margin over related LIBOR index.

3 Defined as either deferring current interest ("PIKing") or OTTI; the majority are predominantly bank CDOs.

Fair value increases occurred in senior tranches and were driven by collateral credit quality improvements, prepayments and declining credit spreads.

Noninterest Expense

Noninterest expense for the third quarter of 2012 was $395.0 million compared to $401.7 million for the second quarter of 2012. The decrease was due primarily to a reduction in other real estate expense resulting from increased net gains on property sales, and to a decline in the provision for unfunded lending commitments.

Asset Quality

Net loan and lease charge-offs decreased 11% to $38 million for the third quarter of 2012, compared to $43 million million for the second quarter of 2012; gross charge-offs declined 20% compared to the second quarter and have declined 54% compared to the year-ago period. Net charge-offs declined primarily in commercial and industrial and home equity credit line loans. 

Nonperforming lending-related assets declined 11% to $838 million at September 30, 2012 from $938 million at June 30, 2012. Nonaccrual loans declined 9% to $719 million at September 30, 2012 from $793 million at June 30, 2012. The ratio of nonperforming lending-related assets to loans and leases and other real estate owned decreased to 2.23% at September 30, 2012, compared to 2.53% at June 30, 2012.

Classified loans, excluding FDIC-supported loans, decreased approximately 4% to $1.8 billion at September 30, 2012, compared to $1.9 billion at June 30, 2012. Approximately 76% of classified loans were current as to principal and interest for the third quarter of 2012, compared to 73% for the second quarter of 2012.

The provision (credit) for loan losses was $(1.9) million for the third quarter of 2012, compared to $10.9 million for the second quarter of 2012. The allowance for credit losses was $1.0 billion, or 2.77% of loans and leases at September 30, 2012, compared to $1.1 billion, or 2.92% of loans and leases at June 30, 2012. The reduction in both the allowance and the provision is attributable to improvement in the quantity and severity of problem loans.

Conference Call

Zions will host a conference call to discuss these third quarter results at 5:30 p.m. ET this afternoon (October 22, 2012). Media representatives, analysts and the public are invited to listen to this discussion by calling 253-237-1247 (domestic and international) and entering the passcode 32821169, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation website at www.zionsbancorporation.com. A replay of the call will be available from approximately 7:30 p.m. ET on Monday, October 22, 2012, until midnight ET on Monday, October 29, 2012, by dialing 404-537-3406 (domestic and international) and entering the same passcode. The webcast of the conference call will also be archived and available for 30 days.

About Zions Bancorporation

Zions Bancorporation is one of the nation's premier financial services companies, consisting of a collection of great banks in select Western markets. Zions operates its banking businesses under local management teams and community identities through approximately 500 offices in 10 Western and Southwestern states:  Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington. The Company is a national leader in Small Business Administration lending and public finance advisory services. In addition, Zions is included in the S&P 500 and NASDAQ Financial 100 indices. Investor information and links to subsidiary banks can be accessed at www.zionsbancorporation.com.

Forward-Looking Information

Statements in this press release that are based on other than historical data or that express the Company's expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that might cause such differences include, but are not limited to: the Company's ability to successfully execute its business plans and achieve its objectives; changes in general economic and financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including changes in securities markets and valuations in structured securities and other assets; changes in governmental policies and programs resulting from general economic and financial market conditions; changes in interest and funding rates; continuing consolidation in the financial services industry; new private and governmental legal actions or changes in existing private and governmental legal actions; increased competitive challenges and expanding product and pricing pressures among financial institutions; legislation or regulatory changes which adversely affect the Company's operations or business (including The Dodd-Frank Wall Street Reform and Consumer Protection Act); and changes in accounting policies, procedures or determinations as may be required by the Financial Accounting Standards Board or other regulatory agencies.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Zions Bancorporation's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and available at the SEC's Internet site (http://www.sec.gov).

Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

 

 Financial Highlights

(Unaudited)

 


Three Months Ended

(In thousands, except share, per share, and ratio data)

September 30,
2012


June 30,
2012


March 31,
2012


December 31,
2011


September 30,
2011

PER COMMON SHARE










Dividends

$

0.01



$

0.01



$

0.01



$

0.01



$

0.01


Book value per common share 1

26.05



25.48



25.25



25.02



24.78


Tangible common equity per common share 1

20.24



19.65



19.39



19.14



18.87












SELECTED RATIOS










Return on average assets

0.82

%


0.70

%


0.69

%


0.67

%


0.84

%

Return on average common equity

5.21

%


4.71

%


2.21

%


3.84

%


5.58

%

Net interest margin

3.63

%


3.62

%


3.73

%


3.86

%


3.99

%











Capital Ratios










Tangible common equity ratio 1

7.17

%


6.91

%


6.89

%


6.77

%


6.90

%

Tangible equity ratio 1

9.32

%


10.35

%


10.24

%


11.33

%


11.56

%

Average equity to average assets

12.22

%


12.37

%


13.31

%


13.27

%


13.51

%











Risk-Based Capital Ratios 1,2










Common equity tier 1 capital

9.84

%


9.78

%


9.71

%


9.57

%


9.53

%

Tier 1 leverage

11.04

%


12.31

%


12.17

%


13.40

%


13.48

%

Tier 1 risk-based capital

13.46

%


15.03

%


14.83

%


16.13

%


16.10

%

Total risk-based capital

15.21

%


16.89

%


16.76

%


18.06

%


18.12

%











Taxable-equivalent net interest income

$

448,632



$

436,610



$

447,161



$

466,699



$

475,580












Weighted average common and common-equivalent shares outstanding

183,382,650



183,136,631



182,963,828



182,823,190



182,857,702


Common shares outstanding 1

184,156,402



184,117,522



184,228,178



184,135,388



184,294,782


1 At period end.

2 Ratios for September 30, 2012 are estimates.

 

CONSOLIDATED BALANCE SHEETS



(In thousands, except share amounts)

September 30,
2012


June 30,
2012


March 31,
2012


December 31,
2011


September 30,
2011


(Unaudited)


(Unaudited)


(Unaudited)




(Unaudited)

ASSETS










Cash and due from banks

$

1,060,918


$

1,124,673


$

1,082,186


$

1,224,350


$

1,102,768

Money market investments:







Interest-bearing deposits

5,519,463


7,887,175


7,629,399


7,020,895


5,118,066

Federal funds sold and security resell agreements

1,960,294


83,529


52,634


102,159


165,106

Investment securities:







Held-to-maturity, at adjusted cost (approximate fair value $655,768, $715,710, $728,479, $729,974, and $715,608)

740,738


773,016


797,149


807,804


791,569

Available-for-sale, at fair value

3,127,192


3,167,590


3,223,086


3,230,795


3,970,602

Trading account, at fair value

13,963


20,539


19,033


40,273


49,782


3,881,893


3,961,145


4,039,268


4,078,872


4,811,953








Loans held for sale

220,240


139,245


184,579


201,590


159,300








Loans, net of unearned income and fees:







Loans and leases

36,582,253


36,231,104


35,903,475


36,393,782


35,924,054

FDIC-supported loans

588,566


642,246


687,126


750,870


800,454


37,170,819


36,873,350


36,590,601


37,144,652


36,724,508

Less allowance for loan losses

925,341


971,716


1,010,059


1,049,958


1,148,903

Loans, net of allowance

36,245,478


35,901,634


35,580,542


36,094,694


35,575,605








Other noninterest-bearing investments

874,903


867,882


875,037


865,231


860,045

Premises and equipment, net

709,188


714,913


715,815


719,276


726,503

Goodwill

1,015,129


1,015,129


1,015,129


1,015,129


1,015,129

Core deposit and other intangibles

55,034


59,277


63,538


67,830


72,571

Other real estate owned

118,190


144,816


158,592


153,178


203,173

Other assets

1,426,271


1,507,594


1,499,588


1,605,905


1,721,101


$

53,087,001


$

53,407,012


$

52,896,307


$

53,149,109


$

51,531,320








LIABILITIES AND SHAREHOLDERS' EQUITY







Deposits:








Noninterest-bearing demand

$

17,295,911


$

16,498,248


$

16,185,140


$

16,110,857


$

14,911,729

Interest-bearing:







Savings and NOW

7,685,192


7,505,841


7,406,910


7,159,101


6,711,002

Money market

14,284,870


14,439,389


14,813,495


14,616,740


14,576,527

Time

3,107,815


3,211,942


3,326,717


3,413,550


3,536,755

Foreign

1,398,749


1,504,827


1,366,826


1,575,361


1,627,135


43,772,537


43,160,247


43,099,088


42,875,609


41,363,148








Securities sold, not yet purchased

21,708


104,882


47,404


44,486


30,070

Federal funds purchased and security repurchase agreements

451,214


759,591


486,808


608,098


630,901

Other short-term borrowings

6,608


7,621


19,839


70,273


125,290

Long-term debt

2,326,659


2,274,571


2,283,121


1,954,462


1,898,439

Reserve for unfunded lending commitments

105,850


103,586


98,718


102,422


98,062

Other liabilities

484,170


507,151


474,551


510,531


466,493

Total liabilities

47,168,746


46,917,649


46,509,529


46,165,881


44,612,403








Shareholders' equity:







Preferred stock, without par value, authorized 4,400,000 shares

1,123,377


1,800,473


1,737,633


2,377,560


2,354,523

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 184,156,402, 184,117,522, 184,228,178, 184,135,388, and 184,294,782 shares

4,162,001


4,157,525


4,162,522


4,163,242


4,160,697

Retained earnings

1,170,477


1,110,120


1,060,525


1,036,590


994,380

Accumulated other comprehensive income (loss)

(534,738)


(576,147)


(571,567)


(592,084)


(588,834)

Controlling interest shareholders' equity

5,921,117


6,491,971


6,389,113


6,985,308


6,920,766

Noncontrolling interests

(2,862)


(2,608)


(2,335)


(2,080)


(1,849)

Total shareholders' equity

5,918,255


6,489,363


6,386,778


6,983,228


6,918,917


$

53,087,001


$

53,407,012


$

52,896,307


$

53,149,109


$

51,531,320