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

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.

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