Zions Bancorporation Reports Earnings Of $0.30 Per Diluted Common Share For Second Quarter 2013

SALT LAKE CITY, July 22, 2013 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported second quarter net earnings applicable to common shareholders of $55.4 million or $0.30 per diluted common share, compared to $88.3 million or $0.48 per diluted share for the first quarter of 2013, and $55.2 million or $0.30 per diluted share for the second quarter of 2012. Net earnings this quarter included after-tax debt extinguishment cost of $24.9 million, or $0.14 per share, which resulted from the redemption of trust preferred securities and a successful tender offer for approximately $258 million of expensive senior debt.

Second Quarter 2013 Highlights

• Loans and leases held for investment, excluding FDIC-supported loans, increased $471 million compared to the prior quarter to $37.8 billion at June 30, 2013. Average loans and leases, excluding FDIC-supported loans, increased $419 million. 
• Excluding an unusually strong performance from FDIC-supported loans, net interest income was relatively stable compared to the prior quarter, supported by the loan growth previously noted.
• The Company completed several capital and financing actions during the quarter consistent with its objective of reducing its cost of capital and financing.
• Credit quality showed continued improvement, with classified loans and nonperforming lending-related assets declining 6% and 12%, respectively, compared to the prior quarter. This continued improvement resulted in a second quarter negative provision for loan losses of $22.0 million.

"We are pleased with the continued growth in loans this quarter, and with the progress that we made toward replacing expensive capital and financing issued during the recent crisis with significantly lower cost instruments," said Harris H. Simmons, chairman and chief executive officer. "We look forward to continued progress on both fronts in the third quarter."

Loans

Loans and leases held for investment, excluding FDIC-supported loans, increased $471 million on a net basis to $37.8 billion at June 30, 2013, compared to $37.3 billion at March 31, 2013. The increases were predominantly in commercial and industrial, construction, and 1-4 family residential loans, and were widespread geographically. Decreases of $181 million, primarily in commercial owner occupied and term commercial real estate, partially offset increases in other loan categories. Average loans and leases, excluding FDIC-supported loans, increased $419 million to $37.5 billion during the second quarter of 2013, compared to $37.1 billion during the first quarter of 2013. Unfunded lending commitments at June 30, 2013 increased by approximately $606 million from the amount at March 31, 2013.

Deposits

Average total deposits for the second quarter of 2013 increased $0.6 billion, or 1%, to $45.0 billion, compared to $44.4 billion for the first quarter of 2013. This increase was driven mainly by average noninterest-bearing demand deposits, which increased $0.4 billion to $17.6 billion in the second quarter from $17.2 billion in the first quarter. The ratio of average loans to average deposits was 84% at June 30, 2013, compared to 85% at March 31, 2013.

Debt and Shareholders' Equity

Consistent with its stated objectives of reducing the cost of its noncommon equity capital and debt financing, the Company completed the following actions during the quarter:

1. On May 3, 2013, Zions Capital Trust B redeemed all of its 8.0% outstanding trust preferred securities (previously included in long-term debt), or 11.4 million shares, at 100% of their $25 per share liquidation amount for a total of $285 million.

2. Following its tender offer announced on May 31, 2013, the Company repurchased on June 18, 2013 approximately $258 million of its $500 million outstanding 7.75% senior notes that were due September 23, 2014.

In connection with these transactions, the Company recorded $40.3 million pretax of debt extinguishment cost, which consisted of the early tender premium and write-offs of unamortized debt discount and issuance costs.

3. On May 3, 2013, the Company issued $126.2 million of its Series H Fixed-Rate Non-Cumulative Perpetual Preferred Stock. Dividends are payable quarterly at an annual rate of 5.75%.

4. On May 17, 2013, the Company issued $300.9 million of its Series I Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock. Dividends are payable semiannually at 5.8% to June 15, 2023, at which time the interest rate resets to three-month LIBOR plus 3.8%.

Net of commissions and fees, the proceeds from these preferred stock issuances added approximately $419.2 million to shareholders' equity and Tier 1 capital. The Company expects to use the proceeds of these and earlier issuances to call like amounts of its 9.5% Series C preferred stock in the third quarter of 2013.

5. On June 13, 2013, the Company issued $300 million of 4.5% senior notes due June 13, 2023. Net proceeds were approximately $297.2 million.

The estimated common equity Tier 1 capital ratio was 10.05% at June 30, 2013, compared to 10.07% at March 31, 2013.

Net Interest Income

Net interest income increased to $431 million for the second quarter of 2013, compared to $418 million for the first quarter of 2013. The net interest margin was unchanged at 3.44% in the second quarter of 2013 compared to the first quarter of 2013. Net interest income was favorably impacted this quarter by approximately $9.4 million (8 bps of the net interest margin) due to better than expected performance of FDIC-supported loans. Continued loan growth mitigated the negative effects on net interest income of loan rates resetting at lower levels. Net interest income also benefited from reduced interest expense due to the retirement of expensive long-term debt.

Noninterest Income

Noninterest income for the second quarter of 2013 was $125.1 million, compared to $121.2 million for the first quarter of 2013. The net increase was primarily due to reduced other-than-temporary impairment ("OTTI") on collateralized debt obligation ("CDO") securities compared to the previous quarter.

CDO Investment Securities

During the second quarter of 2013, the Company recognized credit-related OTTI on CDOs of $4.2 million, compared to $10.1 million during the first quarter of 2013. Fixed income securities losses of $1.2 million for the second quarter consisted of $3.1 million of gains from $11.4 million of cash principal payments on CDOs previously written down and $4.3 million of losses on sales of $14.9 million in par amount from six CDO securities. This compares to first quarter gains of $3.3 million from $19.7 million of cash principal payments on CDOs previously written down and no sales.

The following table provides fair value and other information on the CDOs, stratified into performing tranches without credit impairment and nonperforming tranches at June 30, 2013:

The net unrealized pretax losses in accumulated other comprehensive income ("AOCI") improved by $56 million to $595 million in the second quarter of 2013 from $651 million in the first quarter of 2013 due to fair value increases. These increases occurred primarily in junior tranches and were driven by rising short-term forward interest rates and improvement in credit spreads.

Noninterest Expense

Noninterest expense for the second quarter of 2013 was $451.7 million compared to $397.3 million for the first quarter of 2013. The increase this quarter was due primarily to the debt extinguishment cost of $40 million. Other changes included the provision associated with increased unfunded lending commitments and increased professional and legal services, offset by reduced salary and employee benefit expense primarily resulting from reduced FICA payments. Approximately $3 million of professional services expenses were consulting expenses related to the Company's upgrade of its stress testing and capital planning capabilities and processes to meet Comprehensive Capital Analysis and Review ("CCAR") standards; we expect similar levels of expense related to these efforts in the third and fourth quarters.

Asset Quality

Net loan and lease charge-offs decreased $12.2 million, or 68%, in the second quarter of 2013 compared to the first quarter of 2013, due to significant recoveries of loans previously charged off. Net charge-offs declined primarily in commercial and industrial, owner occupied, and term commercial real estate loans. Gross loan and lease charge-offs were essentially unchanged at $35.1 million in the second quarter of 2013, compared to $35.5 million in the first quarter of 2013; gross charge-offs declined 52% from the second quarter of 2012.

Nonperforming lending-related assets declined 12% to $602 million at June 30, 2013 from $684 million at March 31, 2013. Nonaccrual loans declined 12% to $521 million at June 30, 2013 from $594 million at March 31, 2013. The ratio of nonperforming lending-related assets to loans and leases and other real estate owned decreased to 1.57% at June 30, 2013, compared to 1.80% at March 31, 2013.

Classified loans, excluding FDIC-supported loans, decreased approximately 6% to $1.64 billion at June 30, 2013, compared to $1.74 billion at March 31, 2013. Approximately 84% of classified loans were current as to principal and interest for the second quarter of 2013, compared to 80% for the first quarter of 2013, and 73% for the second quarter of 2012.

Other credit quality metrics also improved to a degree generally consistent with those metrics detailed above.

The negative provision for loan losses was $22.0 million for the second quarter of 2013, compared to a negative provision of $29.0 million for the first quarter of 2013. The negative provision continues to be driven by the improvement in credit quality. The allowance for credit losses was $0.92 billion, or 2.40% of loans and leases at June 30, 2013, compared to $0.94 billion, or 2.50% of loans and leases at March 31, 2013.

Other Matters

During the second quarter of 2013, the Company's Board of Directors approved a significant investment by the Company to replace its core loan and deposit systems with an integrated system offered by TATA Consultancy Services; additionally, the Company plans to upgrade its accounting systems. These initiatives will be completed in phases; as such phases are completed, management expects a significant improvement in operational efficiency, risk management, an improved customer experience as well as reduced operational and financial risk stemming from older legacy systems. The Company is executing in phases to allow for thorough testing of the new systems before retiring the current systems, with care being exercised to minimize or eliminate any adverse customer impact.

These initiatives are in the early stages of development and by their very nature, projections of duration, cost, expected savings, and related items are subject to change and significant variability. Management currently estimates that these initiatives will take between five and seven years to implement. The total cost of these initiatives is currently estimated to be approximately $200 million, with approximately one third of that amount estimated to be capitalized.

Conference Call

Zions will host a conference call to discuss these second quarter results at 5:30 p.m. ET this afternoon (July 22, 2013). 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 99931233, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation website at www.zionsbancorporation.com. 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 475 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, and received 13 "Excellence" awards by Greenwich Associates for the 2012 survey. 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.

This press release presents the non-GAAP financial measure previously shown. The adjustments to reconcile from the applicable GAAP financial measure to the non-GAAP financial measure are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results.

The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measure provides a meaningful base for period-to-period and company-to-company comparisons, which will assist investors and analysts in analyzing the operating results of the Company and in predicting future performance. This non-GAAP financial measure is used by management and the Board of Directors to assess the performance of the Company's business for evaluating bank reporting segment performance, for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting this non-GAAP financial measure will permit investors and analysts to assess the performance of the Company on the same basis as that applied by management and the Board of Directors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.

SOURCE Zions Bancorporation