Zions Bancorporation Reports Earnings Of $0.40 Per Diluted Common Share For Third Quarter 2014

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Oct 20, 2014, 04:10 ET

SALT LAKE CITY, Oct. 20, 2014 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported third quarter net earnings applicable to common shareholders of $79.1 million, or $0.40 per diluted common share, compared to $104.5 million, or $0.56 per diluted share for the second quarter of 2014, and $209.7 million, or $1.12 per diluted share for the third quarter of 2013. Earnings per share this quarter were adversely impacted by debt extinguishment costs ($0.14 per share) and net losses on sales of securities ($0.06 per share), offset by reserve releases ($0.22 per share). In comparison, earnings per share benefited from reserve releases ($0.16 per share) in the second quarter of 2014, and from the redemption of Series C preferred stock ($0.68 per share) in the third quarter of 2013.

During the third quarter of 2014, the Company undertook considerable actions to reduce risk and enhance capital levels, both on an as-reported basis and under hypothetical stress test scenarios. Actions included:

Issuance of $525 million of common stock
Reduction of $835 million par amount of long-term debt through tender offers, early calls, and maturities
Reduction of $447 million in construction and land development loans through conversions to term, syndications, and increased participations
Sales of $174 million and paydowns of $32 million of collateralized debt obligations ("CDOs")

Third Quarter 2014 Highlights

Credit quality continued to improve as nonperforming lending-related assets declined 12% linked quarter and classified loans declined 7% linked quarter. These and other improvements in credit quality metrics contributed to negative provisions of $55 million for loans and $16 million for unfunded lending commitments.
Net interest income of $417 million this quarter was essentially unchanged from the prior quarter.
The estimated Tier 1 common equity ratio increased to 11.88% at September 30, 2014 from 10.45% at June 30, 2014, resulting primarily from the capital and risk management actions previously discussed.

"We accomplished a number of actions this quarter designed to significantly improve the capital and risk profile of the Company, and Zions now has one of the strongest capital ratios of all the large U.S. banks. Additionally, by materially reducing expensive and unneeded debt, we improved future pretax earnings by more than $50 million annually," said Harris H. Simmons, chairman and chief executive officer. "At the same time, we are pleased that the underlying performance of our franchise continued to strengthen – the credit quality metrics remain among the best of the large U.S. banks. Finally, although operating expenses increased moderately, we remain sanguine with the progress of overhauling our core operating and accounting systems, and the ultimate efficiencies that should result from such efforts."

Loans

Net loans and leases held for investment increased $110 million, or 0.3%, to $39.7 billion at September 30, 2014 from $39.6 billion at June 30, 2014. Increases of $691 million primarily included (1) $326 million in 1-4 family residential loans, which included a purchase of $249 million of high quality jumbo ARMs in our Western states footprint from another bank and (2) $197 million in term commercial real estate loans. The increases were partially offset by $581 million of decreases, which included managed reductions of $447 million in construction and land development loans that included conversions to term, syndications, and participations for portfolio concentration risk management purposes.

Average loans and leases of $39.6 billion during the third quarter of 2014 were essentially unchanged from the second quarter. Unfunded lending commitments were $17.2 billion at September 30, 2014, compared to $17.5 billion at June 30, 2014.

Deposits

Total deposits increased $595 million to $46.3 billion at September 30, 2014, compared to $45.7 billion at June 30, 2014, primarily due to increases in commercial account balances. Average total deposits for the third quarter of 2014 increased $832 million, or 2%, to $46.3 billion, compared to $45.5 billion for the second quarter of 2014. The ratio of average loans to average deposits was 85.5% for the third quarter of 2014, compared to 87.0% for the second quarter of 2014.

Debt and Shareholders' Equity

On September 29, 2014, through tender offers, the Company completed the purchase of $500 million par amount, or 56%, of its 4.0% and 4.5% senior notes maturing in June 2016, March 2017, and June 2023. Debt extinguishment costs of approximately $44 million included $34 million of early tender premiums. During the third quarter of 2014, approximately $335 million of other senior and subordinated notes matured or were redeemed under an early call provision. As a result of these debt redemptions, the total amount of long-term debt outstanding declined to $1.1 billion at September 30, 2014 from $1.9 billion at June 30, 2014 and $2.3 billion at September 30, 2013.

On July 28, 2014, the Company issued $525 million of common stock, which was $125 million more than the Company proposed in its 2014 resubmitted Capital Plan. The issuance consisted of approximately 17.6 million shares at a price of $29.80 per share and, after issuance costs, added a net amount of approximately $516 million to Tier 1 common capital.

Tangible book value per common share improved by approximately 3% compared to the prior quarter, increasing to $26.00 from $25.13. Compared to the year-ago period, tangible book value per common share improved by approximately 12%.

The estimated Tier 1 common equity ratio was 11.88% at September 30, 2014, compared to 10.45% at June 30, 2014.

Investment Securities

During the third quarter, the Company sold approximately $239 million par amount of CDO securities ($174 million amortized cost), resulting in realized losses of $19 million. Continued improvement in market prices resulted in securities being sold at amounts generally exceeding their fair values at June 30, 2014, and in some cases, exceeding the Company's amortized cost. Gains on paydowns of CDO securities were approximately $5 million during the third quarter, essentially the same amount as the second quarter. The Company did not record any other-than-temporary impairment ("OTTI") on its investment securities in the third or second quarters of 2014.

Net Interest Income

Net interest income of $417 million for the third quarter of 2014 was essentially unchanged from the second quarter of 2014. Declines in interest and fees on loans were offset by lower interest expense on long-term debt. The net interest margin decreased to 3.20% in the third quarter of 2014, compared to 3.29% in the second quarter of 2014. The net interest margin was negatively affected by higher average cash balances of approximately $1 billion held until the large repayments of debt late in the quarter, and by lower gross income of approximately $5 million on FDIC-supported/PCI loans, which continues to decline due to the runoff of the portfolio.

Noninterest Income

Noninterest income for the third quarter of 2014 was $116 million, compared to $125 million for the second quarter of 2014. The decrease was due primarily to $19 million of net losses on sales of CDO securities, as previously discussed, which did not occur in the prior quarter. Other changes included an increase of $3 million in dividends and other investment income, primarily from the Company's investment in Farmer Mac and from proceeds on BOLI policies. Service charges and fees on deposit accounts, and other service charges, commissions and fees increased by approximately $6 million during the third quarter compared to the prior quarter.

Noninterest Expense

Noninterest expense for the third quarter of 2014 was $439 million compared to $406 million for the second quarter of 2014. The most significant change was a $44 million expense in the third quarter associated with debt extinguishment, as previously discussed, which did not occur in the prior quarter. Additionally, the provision for unfunded lending commitments declined to a negative $16 million in the third quarter from $7 million in the prior quarter, attributable to improved credit quality metrics, as discussed later. The Company also incurred $8 million of incremental expenses in the third quarter associated with the technology projects to replace the Company's core loan, deposit, and accounting systems, which costs are included primarily in salary and employee benefits and professional and legal services.

Salaries and employee benefits increased to $246 million from $239 million in the prior quarter. Severance costs included in salaries and employee benefits were $5 million in the third quarter, up from $1 million in the prior quarter. The increased severance costs were attributable to identified staff reductions planned for the second half of 2015 to streamline loan operations as part of the technology replacement project.

Professional and legal services increased by $4 million in the third quarter compared to the prior quarter, also due to the technology replacement project.

Asset Quality

Credit quality continued to improve as nonperforming lending-related assets declined 12% to $335 million at September 30, 2014 from $379 million at June 30, 2014. Classified loans were $1.1 billion at September 30, 2014, compared to $1.2 billion at June 30, 2014. The ratio of nonperforming lending-related assets to loans and leases and other real estate owned decreased to 0.84% at September 30, 2014, compared to 0.95% at June 30, 2014.

Net loan and lease charge-offs were $11 million in the third quarter of 2014, compared to $6 million in the second quarter of 2014. Recoveries were $15 million in the third quarter, compared to $17 million in the second quarter. Gross loan and lease charge-offs were $26 million in the third quarter, compared to $23 million in the second quarter.

The provision for credit losses consists of the provision for loan losses (negative $55 million in the third quarter) plus the provision for unfunded lending commitments (negative $16 million in the third quarter). The negative provision for loan losses in the third quarter is consistent with the amount in the second quarter. Both negative provisions this quarter reflect the continued improvement in portfolio-specific credit quality metrics, sustained improvement in broader economic and credit quality indicators, and the portfolio concentration actions described previously. The allowance for credit losses was $690 million, or 1.74%, of loans and leases at September 30, 2014, compared to $771 million, or 1.95%, of loans and leases at June 30, 2014.

Conference Call

Zions will host a conference call to discuss these third quarter results at 5:30 p.m. ET this afternoon (October 20, 2014). 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 6233688, 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 in 11 Western and Southwestern states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. The Company is a national leader in Small Business Administration lending and public finance advisory services, and received 12 "Excellence" awards by Greenwich Associates for the 2013 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 could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company'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, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
PER COMMON SHARE
Dividends	$	0.04	$	0.04	$	0.04	$	0.04	$	0.04
Book value per common share ¹	31.14		30.77		30.19		29.57		28.87
Tangible book value per common share ¹	26.00		25.13		24.53		23.88		23.16

SELECTED RATIOS
Return on average assets	0.68%		0.87%		0.74%		(0.30)%		0.80%
Return on average common equity	5.05%		7.30%		5.52%		(4.51)%		16.03%
Tangible return on average tangible common equity	6.19%		9.07%		6.96%		(5.45)%		20.34%
Net interest margin	3.20%		3.29%		3.31%		3.33%		3.22%

Capital Ratios
Tangible common equity ratio ¹	9.70%		8.60%		8.24%		8.02%		7.90%
Tangible equity ratio ¹	11.54%		10.46%		10.06%		9.85%		9.75%
Average equity to average assets	12.87%		12.26%		11.90%		11.20%		12.39%

Risk-Based Capital Ratios ^1,2
Tier 1 common equity	11.88%		10.45%		10.56%		10.18%		10.47%
Tier 1 leverage	11.87%		11.00%		10.71%		10.48%		10.63%
Tier 1 risk-based capital	14.45%		13.00%		13.19%		12.77%		13.10%
Total risk-based capital	16.31%		14.90%		15.11%		14.67%		14.82%

Taxable-equivalent net interest income	$	420,850	$	420,202	$	420,305	$	435,714	$	419,236

Weighted average common and common-equivalent shares outstanding	197,271,076		185,286,329		185,122,844		184,208,544		184,742,414
Common shares outstanding ¹	202,898,491		185,112,965		184,895,182		184,677,696		184,600,005

¹At period end.

² Ratios for September 30, 2014 are estimates.

CONSOLIDATED BALANCE SHEETS

*(In thousands, except shares)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
	(Unaudited)		(Unaudited)		(Unaudited)				(Unaudited)
ASSETS
Cash and due from banks	$	588,691	$	1,384,131	$	1,341,319	$	1,175,083	$	1,365,082
Money market investments:
Interest-bearing deposits	7,464,865		6,386,353		8,157,837		8,175,048		8,180,639
Federal funds sold and security resell agreements	355,844		478,535		379,947		282,248		209,070
Investment securities:
Held-to-maturity, at adjusted cost (approximate fair value $642,529, $643,926, $635,379, $609,547, and $727,908)	609,758		615,104		606,279		588,981		777,849
Available-for-sale, at fair value	3,563,408		3,462,809		3,423,205		3,701,886		3,333,889
Trading account, at fair value	55,419		56,572		56,172		34,559		38,278
	4,228,585		4,134,485		4,085,656		4,325,426		4,150,016

Loans held for sale	109,139		164,374		126,344		171,328		114,810

Loans and leases, net of unearned income and fees	39,739,795		39,630,363		39,198,136		39,043,365		38,272,730
Less allowance for loan losses	610,277		675,907		736,953		746,291		797,523
Loans, net of allowance	39,129,518		38,954,456		38,461,183		38,297,074		37,475,207

Other noninterest-bearing investments	855,743		854,978		848,775		855,642		851,349
Premises and equipment, net	811,127		803,214		785,519		726,372		720,365
Goodwill	1,014,129		1,014,129		1,014,129		1,014,129		1,014,129
Core deposit and other intangibles	28,160		30,826		33,562		36,444		39,667
Other real estate owned	27,418		27,725		39,248		46,105		66,381
Other assets	845,651		878,069		807,325		926,228		1,001,597
	$	55,458,870	$	55,111,275	$	56,080,844	$	56,031,127	$	55,188,312

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand	$	19,770,405	$	19,609,990	$	19,257,889	$	18,758,753	$	18,566,137
Interest-bearing:
Savings and money market	23,742,911		23,308,114		23,097,351		23,029,928		22,806,132
Time	2,441,756		2,500,303		2,528,735		2,593,038		2,689,688
Foreign	310,264		252,207		1,648,111		1,980,161		1,607,409
	46,265,336		45,670,614		46,532,086		46,361,880		45,669,366

Federal funds and other short-term borrowings	191,798		258,401		279,837		340,348		273,774
Long-term debt	1,113,677		1,933,136		2,158,701		2,273,575		2,304,301
Reserve for unfunded lending commitments	79,377		95,472		88,693		89,705		84,147
Other liabilities	486,523		453,562		435,311		501,056		523,915
Total liabilities	48,136,711		48,411,185		49,494,628		49,566,564		48,855,503

Shareholders' equity:
Preferred stock, without par value, authorized 4,400,000 shares	1,004,006		1,004,006		1,003,970		1,003,970		1,003,970

Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 202,898,491, 185,112,965, 184,895,182, 184,677,696, and 184,600,005 shares	4,717,295		4,192,136		4,185,513		4,179,024		4,172,887
Retained earnings	1,711,785		1,640,785		1,542,195		1,473,670		1,540,455

Accumulated other comprehensive income (loss)	(110,927)		(136,837)		(145,462)		(192,101)		(384,503)
Total shareholders' equity	7,322,159		6,700,090		6,586,216		6,464,563		6,332,809
	$	55,458,870	$	55,111,275	$	56,080,844	$	56,031,127	$	55,188,312

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended
*(In thousands, except per share amounts)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Interest income:
Interest and fees on loans	$	430,415	$	433,801	$	434,344	$	458,493	$	442,366
Interest on money market investments	5,483		4,888		5,130		5,985		6,175
Interest on securities	24,377		24,502		28,094		25,539		24,866
Total interest income	460,275		463,191		467,568		490,017		473,407

Interest expense:
Interest on deposits	12,313		12,096		12,779		13,622		14,506
Interest on short- and long-term borrowings	31,144		34,812		38,324		44,360		43,380
Total interest expense	43,457		46,908		51,103		57,982		57,886

Net interest income	416,818		416,283		416,465		432,035		415,521
Provision for loan losses	(54,643)		(54,416)		(610)		(30,538)		(5,573)
Net interest income after provision for loan losses	471,461		470,699		417,075		462,573		421,094

Noninterest income:
Service charges and fees on deposit accounts	44,941		42,873		42,594		43,729		44,701
Other service charges, commissions and fees	51,005		47,513		43,519		46,877		45,977
Wealth management income	7,438		7,980		7,077		8,067		7,120
Capital markets and foreign exchange	5,361		5,842		5,000		6,516		7,309
Dividends and other investment income	11,324		7,995		7,864		9,898		12,101
Loan sales and servicing income	6,793		6,335		6,474		5,155		8,464
Fair value and nonhedge derivative income (loss)	44		(1,934)		(8,539)		(5,347)		(4,403)
Equity securities gains, net	440		2,513		912		314		3,165
Fixed income securities gains (losses), net	(13,901)		5,026		30,914		(6,624)		1,580
Impairment losses on investment securities:
Impairment losses on investment securities	—		—		(27)		(141,733)		(10,470)
Noncredit-related losses on securities not expected to be sold (recognized in other comprehensive income)	—		—		—		—		1,403
Net impairment losses on investment securities	—		—		(27)		(141,733)		(9,067)
Other	2,627		707		2,531		1,998		5,243
Total noninterest income (loss)	116,072		124,850		138,319		(31,150)		122,190

Noninterest expense:
Salaries and employee benefits	245,520		238,764		233,406		226,616		229,185
Occupancy, net	28,495		28,939		28,305		28,733		28,230
Furniture, equipment and software	28,524		27,986		27,944		27,450		26,560
Other real estate expense	875		(266)		1,607		(1,024)		(831)
Credit-related expense	6,475		7,139		6,906		6,509		7,265
Provision for unfunded lending commitments	(16,095)		6,779		(1,012)		5,558		(19,935)
Professional and legal services	16,588		12,171		10,995		23,886		16,462
Advertising	6,094		6,803		6,398		5,571		6,091
FDIC premiums	8,204		8,017		7,922		8,789		9,395
Amortization of core deposit and other intangibles	2,665		2,736		2,882		3,224		3,570
Debt extinguishment cost	44,422		—		—		79,910		—
Other	66,769		66,959		72,710		79,528		64,671
Total noninterest expense	438,536		406,027		398,063		494,750		370,663

Income (loss) before income taxes	148,997		189,522		157,331		(63,327)		172,621
Income taxes (benefit)	53,109		69,972		56,121		(21,855)		61,107
Net income (loss)	95,888		119,550		101,210		(41,472)		111,514
Preferred stock dividends	(16,761)		(15,060)		(25,020)		(17,965)		(27,507)
Preferred stock redemption	—		—		—		—		125,700
Net earnings (loss) applicable to common shareholders	$	79,127	$	104,490	$	76,190	$	(59,437)	$	209,707

Weighted average common shares outstanding during the period:
Basic shares	196,687		184,668		184,440		184,209		184,112
Diluted shares	197,271		185,286		185,123		184,209		184,742

Net earnings (loss) per common share:
Basic	$	0.40	$	0.56	$	0.41	$	(0.32)	$	1.13
Diluted	0.40		0.56		0.41		(0.32)		1.12

Loan Balances Held for Investment by Portfolio Type (Unaudited)

(In millions)	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Commercial:
Commercial and industrial	$	12,897	$	12,805	$	12,512	$	12,481	$	11,904
Leasing	405		415		389		388		375
Owner occupied	7,334		7,387		7,348		7,437		7,379
Municipal	518		522		482		449		449
Total commercial	21,154		21,129		20,731		20,755		20,107

Commercial real estate:
Construction and land development	1,893		2,340		2,264		2,183		2,240
Term	8,166		7,969		8,080		8,006		7,929
Total commercial real estate	10,059		10,309		10,344		10,189		10,169

Consumer:
Home equity credit line	2,255		2,204		2,165		2,133		2,124
1-4 family residential	5,153		4,827		4,796		4,737		4,637
Construction and other consumer real estate	350		338		330		325		321
Bankcard and other revolving plans	389		376		361		356		332
Other	190		196		186		198		208
Total consumer	8,337		7,941		7,838		7,749		7,622

FDIC-supported/PCI loans ¹	190		251		285		350		375
Total loans	$	39,740	$	39,630	$	39,198	$	39,043	$	38,273

¹FDIC-supported loans represent loans acquired from the FDIC subject to loss sharing agreements.

FDIC-Supported/PCI Loans – Effect of Higher Accretion and Impact on FDIC Indemnification Asset (Unaudited)

	Three Months Ended
*(In thousands)*		September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Balance sheet:

Change in assets from reestimation of cash flows – increase (decrease):
FDIC-supported/PCI loans		$	7,696	$	11,701	$	18,453	$	28,502	$	15,018
FDIC indemnification asset		(5,935)		(9,314)		(15,972)		(19,934)		(12,965)

Balance at end of period:
FDIC-supported/PCI loans (included in loans and leases)		190,441		250,568		285,313		350,271		374,861
FDIC indemnification asset (included in other assets)		759		5,777		13,184		26,411		41,771

	Three Months Ended
*(In thousands)*		September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Statement of income:

Interest income:
Interest and fees on loans		$	7,696	$	11,701	$	18,453	$	28,502	$	15,018

Noninterest expense:
Other noninterest expense		5,935		9,314		15,972		19,934		12,965
Net increase in pretax income		$	1,761	$	2,387	$	2,481	$	8,568	$	2,053

Nonperforming Lending-Related Assets (Unaudited)

*(Amounts in thousands)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013

Nonaccrual loans	$	306,716	$	349,415	$	397,549	$	402,219	$	466,795
Other real estate owned	24,762		26,498		37,841		42,817		58,295

Nonperforming lending-related assets, excluding FDIC-supported/PCI assets	331,478		375,913		435,390		445,036		525,090

FDIC-supported/PCI nonaccrual loans	514		2,032		4,117		4,394		4,744
FDIC-supported/PCI other real estate owned	2,656		1,227		1,407		3,288		8,086

FDIC-supported/PCI nonperforming lending-related assets	3,170		3,259		5,524		7,682		12,830
Total nonperforming lending-related assets	$	334,648	$	379,172	$	440,914	$	452,718	$	537,920

Ratio of nonperforming lending-related assets to loans ¹ and leases and other real estate owned	0.84%		0.95%		1.12%		1.15%		1.40%

Accruing loans past due 90 days or more, excluding FDIC-supported/PCI loans	$	10,330	$	13,728	$	6,661	$	9,957	$	9,398

Accruing FDIC-supported/PCI loans past due 90 days or more	20,425		33,041		31,529		30,391		22,450

Ratio of accruing loans past due 90 days or more to loans ¹ and leases	0.08%		0.12%		0.10%		0.10%		0.08%

Nonaccrual loans and accruing loans past due 90 days or more	$	337,985	$	398,216	$	439,856	$	446,961	$	503,387

Ratio of nonaccrual loans and accruing loans past due 90 days or more to loans ¹ and leases	0.85%		1.00%		1.12%		1.14%		1.31%

Accruing loans past due 30 - 89 days, excluding FDIC-supported/PCI loans	$	85,288	$	100,851	$	110,566	$	104,760	$	85,128

Accruing FDIC-supported/PCI loans past due 30 - 89 days	3,793		7,232		3,839		11,752		10,983

Restructured loans included in nonaccrual loans	109,673		103,157		130,534		136,135		166,573
Restructured loans on accrual	264,994		320,206		318,886		345,299		384,793

Classified loans, excluding FDIC-supported/PCI loans	1,135,826		1,225,993		1,295,976		1,240,148		1,432,806

¹ Includes loans held for sale.

Allowance for Credit Losses (Unaudited)

	Three Months Ended
(Amounts in thousands)	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Allowance for Loan Losses
Balance at beginning of period	$	675,907	$	736,953	$	746,291	$	797,523	$	813,912
Add:
Provision for losses	(54,643)		(54,416)		(610)		(30,538)		(5,573)
Adjustment for FDIC-supported/PCI loans	(25)		(444)		(817)		(1,481)		(2,118)
Deduct:
Gross loan and lease charge-offs	(26,471)		(23,400)		(20,795)		(37,405)		(22,826)
Recoveries	15,509		17,214		12,884		18,192		14,128
Net loan and lease charge-offs	(10,962)		(6,186)		(7,911)		(19,213)		(8,698)
Balance at end of period	$	610,277	$	675,907	$	736,953	$	746,291	$	797,523

Ratio of allowance for loan losses to loans and leases, at period end	1.54%		1.71%		1.88%		1.91%		2.08%

Ratio of allowance for loan losses to nonperforming loans, at period end	198.64%		192.32%		183.47%		183.54%		169.13%

Annualized ratio of net loan and lease charge-offs to average loans	0.11%		0.06%		0.08%		0.20%		0.09%

Reserve for Unfunded Lending Commitments
Balance at beginning of period	$	95,472	$	88,693	$	89,705	$	84,147	$	104,082
Provision charged (credited) to earnings	(16,095)		6,779		(1,012)		5,558		(19,935)
Balance at end of period	$	79,377	$	95,472	$	88,693	$	89,705	$	84,147

Total Allowance for Credit Losses
Allowance for loan losses	$	610,277	$	675,907	$	736,953	$	746,291	$	797,523
Reserve for unfunded lending commitments	79,377		95,472		88,693		89,705		84,147
Total allowance for credit losses	$	689,654	$	771,379	$	825,646	$	835,996	$	881,670

Ratio of total allowance for credit losses to loans and leases outstanding, at period end	1.74%		1.95%		2.11%		2.14%		2.30%

Nonaccrual Loans by Portfolio Type (Excluding FDIC-Supported/PCI Loans) (Unaudited)

*(In millions)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013

Loans held for sale	$	—	$	29	$	—	$	—	$	—

Commercial:
Commercial and industrial	88		83		109		98		100
Leasing	1		1		1		1		1
Owner occupied	98		101		127		136		158
Municipal	8		9		10		10		10
Total commercial	195		194		247		245		269

Commercial real estate:
Construction and land development	25		23		29		29		65
Term	30		44		59		60		61
Total commercial real estate	55		67		88		89		126

Consumer:
Home equity credit line	12		11		10		9		8
1-4 family residential	43		45		48		53		58
Construction and other consumer real estate	2		2		3		4		4
Bankcard and other revolving plans	—		1		1		1		1
Other	—		—		1		1		1
Total consumer	57		59		63		68		72
Subtotal nonaccrual loans	307		320		398		402		467
Total nonaccrual loans	$	307	$	349	$	398	$	402	$	467

Net Charge-Offs by Portfolio Type (Unaudited)

	Three Months Ended
*(In millions)*		September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Commercial:
Commercial and industrial		$	9	$	7	$	1	$	15	$	2
Leasing		—		—		(1)		—		—
Owner occupied		2		(2)		2		1		2
Municipal		—		—		—		—		—
Total commercial		11		5		2		16		4

Commercial real estate:
Construction and land development		(2)		(3)		(2)		(3)		(1)
Term		2		3		7		5		3
Total commercial real estate		—		—		5		2		2

Consumer:
Home equity credit line		—		1		—		—		1
1-4 family residential		(1)		(1)		1		—		1
Construction and other consumer real estate		—		—		(1)		—		—
Bankcard and other revolving plans		1		—		2		1		1
Other		—		1		(1)		—		—
Total consumer loans		—		1		1		1		3
Total net charge-offs		$	11	$	6	$	8	$	19	$	9

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Unaudited)

	Three Months Ended
	September 30, 2014			June 30, 2014			March 31, 2014
*(In thousands)*	Average balance		Average rate	Average balance		Average rate	Average balance		Average rate
ASSETS
Money market investments	$	8,489,153	0.26%	$	7,500,554	0.26%	$	8,137,123	0.26%
Securities:
Held-to-maturity	612,244		5.13%	600,392		5.37%	587,473		5.65%
Available-for-sale	3,383,618		2.10%	3,355,710		2.12%	3,470,983		2.48%
Trading account	50,970		3.14%	66,929		3.39%	58,543		3.34%
Total securities	4,046,832		2.57%	4,023,031		2.63%	4,116,999		2.95%

Loans held for sale	124,347		3.76%	113,569		3.61%	157,170		3.61%

Loans ¹:
Loans and leases	39,370,925		4.24%	39,271,351		4.28%	38,805,192		4.30%
FDIC-supported/PCI loans	196,864		19.60%	272,762		23.01%	319,695		29.35%
Total loans	39,567,789		4.33%	39,544,113		4.41%	39,124,887		4.51%
Total interest-earning assets	52,228,121		3.53%	51,181,267		3.66%	51,536,179		3.71%
Cash and due from banks	861,798			922,421			1,040,906
Allowance for loan losses	(674,590)			(734,517)			(745,671)
Goodwill	1,014,129			1,014,129			1,014,129
Core deposit and other intangibles	29,535			32,234			35,072
Other assets	2,668,896			2,620,739			2,552,965
Total assets	$	56,127,889		$	55,036,273		$	55,433,580

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Savings and money market	$	23,637,158	0.16%	$	23,479,755	0.15%	$	22,908,201	0.16%
Time	2,466,552		0.45%	2,507,489		0.47%	2,560,283		0.49%
Foreign	254,549		0.16%	258,234		0.17%	1,751,910		0.20%
Total interest-bearing deposits	26,358,259		0.19%	26,245,478		0.18%	27,220,394		0.19%
Borrowed funds:

Federal funds and other short-term borrowings	176,383		0.12%	261,011		0.10%	249,043		0.11%
Long-term debt	1,878,247		6.57%	2,038,810		6.84%	2,237,457		6.93%
Total borrowed funds	2,054,630		6.01%	2,299,821		6.07%	2,486,500		6.25%
Total interest-bearing liabilities	28,412,889		0.61%	28,545,299		0.66%	29,706,894		0.70%
Noninterest-bearing deposits	19,932,040			19,212,574			18,557,992
Other liabilities	557,604			529,716			569,361
Total liabilities	48,902,533			48,287,589			48,834,247
Shareholders' equity:
Preferred equity	1,004,012			1,003,988			1,003,970
Common equity	6,221,344			5,744,696			5,595,363
Total shareholders' equity	7,225,356			6,748,684			6,599,333
Total liabilities and shareholders' equity	$	56,127,889		$	55,036,273		$	55,433,580

Spread on average interest-bearing funds			2.92%			3.00%			3.01%

Net yield on interest-earning assets			3.20%			3.29%			3.31%

¹ Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

CDO Investments – Selected Information Stratified into Performing Tranches Without Credit Impairment and Nonperforming Tranches

	September 30, 2014
*(Amounts in millions)*	No. of tranches	Par amount		Amortized cost		Carrying value		Net unrealized (losses) gains recognized in AOCI ¹		Weighted average discount rate ²	% of carrying value to par
Performing CDOs
Predominantly bank CDOs	19	$	497	$	462	$	379	$	(83)	4.6%	76%
Insurance CDOs	2	41		39		40		1		1.4%	98%
Total performing CDOs	21	538		501		419		(82)		4.3%	78%

Nonperforming CDOs ³
CDOs credit impaired prior to last 12 months	16	363		237		168		(69)		3.8%	46%
CDOs credit impaired during last 12 months	3	31		25		18		(7)		4.9%	58%
Total nonperforming CDOs	19	394		262		186		(76)		3.9%	47%

Total CDOs	40	$	932	$	763	$	605	$	(158)	4.1%	65%


¹ Amounts presented are pretax.
² Margin over related LIBOR index.
³ Defined as either deferring current interest ("PIKing") or OTTI.

CDO Investments – Changes in Selected Information

	Changes from June 30, 2014 to September 30, 2014
*(Amounts in millions)*	No. of tranches	Par amount		Amortized cost		Carrying value		Decrease (increase) in net unrealized losses recognized in AOCI		Weighted average discount rate	% of carrying value to par
Performing CDOs
Predominantly bank CDOs	(4)	$	(142)	$	(118)	$	(99)	$	19	(0.6)%	1%
Insurance CDOs	—	(1)		(1)		(1)		—		0.1%	—%
Total performing CDOs	(4)	(143)		(119)		(100)		19		(0.6)%	2%

Nonperforming CDOs
CDOs credit impaired prior to last 12 months	(5)	(97)		(59)		(41)		18		(0.7)%	1%
CDOs credit impaired during last 12 months	(2)	(36)		(29)		(20)		9		(0.6)%	1%
Total nonperforming CDOs	(7)	(133)		(88)		(61)		27		(0.7)%	—%

Total CDOs	(11)	$	(276)	$	(207)	$	(161)	$	46	(0.7)%	2%

GAAP to Non-GAAP Reconciliations (Unaudited)

*(Amounts in thousands)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Tangible Book Value per Common Share

Total shareholders' equity (GAAP)	$	7,322,159	$	6,700,090	$	6,586,216	$	6,464,563	$	6,332,809
Preferred stock	(1,004,006)		(1,004,006)		(1,003,970)		(1,003,970)		(1,003,970)
Goodwill	(1,014,129)		(1,014,129)		(1,014,129)		(1,014,129)		(1,014,129)
Core deposit and other intangibles	(28,160)		(30,826)		(33,562)		(36,444)		(39,667)
Tangible common equity (non-GAAP) (a)	$	5,275,864	$	4,651,129	$	4,534,555	$	4,410,020	$	4,275,043

Common shares outstanding (b)	202,898		185,113		184,895		184,678		184,600

Tangible book value per common share (non-GAAP) (a/b)	$	26.00	$	25.13	$	24.53	$	23.88	$	23.16

	Three Months Ended
*(Amounts in thousands)*	September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Tangible Return on Average Tangible Common Equity

Net earnings (loss) applicable to common shareholders (GAAP)	$	79,127	$	104,490	$	76,190	$	(59,437)	$	209,707

Adjustments, net of tax:
Amortization of core deposit and other intangibles	1,690		1,735		1,827		2,046		2,268

Net earnings (loss) applicable to common shareholders, excluding the effects of the adjustments, net of tax (non-GAAP) (a)	$	80,817	$	106,225	$	78,017	$	(57,391)	$	211,975

Average common equity (GAAP)	$	6,221,344	$	5,744,696	$	5,595,363	$	5,233,422	$	5,190,073
Average goodwill	(1,014,129)		(1,014,129)		(1,014,129)		(1,014,129)		(1,014,129)
Average core deposit and other intangibles	(29,535)		(32,234)		(35,072)		(38,137)		(41,751)

Average tangible common equity (non-GAAP) (b)	$	5,177,680	$	4,698,333	$	4,546,162	$	4,181,156	$	4,134,193

Number of days in quarter (c)	92		91		90		92		92
Number of days in year (d)	365		365		365		365		365

Tangible return on average tangible common equity (non-GAAP) (a/b/c*d)	6.19%		9.07%		6.96%		(5.45)%		20.34%

This press release presents the non-GAAP financial measures previously shown. The adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures 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 measures 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. These non-GAAP financial measures are 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 these non-GAAP financial measures 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.

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SOURCE Zions Bancorporation