Zions Bancorporation Reports Earnings Of $0.19 Per Diluted Common Share For Fourth Quarter 2012

SALT LAKE CITY, Jan. 28, 2013 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported fourth quarter net earnings applicable to common shareholders of $35.6 million or $0.19 per diluted common share, compared to $62.3 million or $0.34 per diluted share for the third quarter of 2012. Net earnings were adversely affected this quarter by a net amount of $73.6 million pretax, or $0.25 per diluted share, consisting of $83.8 million of other-than-temporary impairment ("OTTI") on collateralized debt obligation ("CDO") securities, partially offset by $10.2 million of CDO securities gains.  

Fourth Quarter 2012 Highlights

• Loans and leases, excluding FDIC-supported loans, increased $463 million to $37.1 billion at December 31, 2012. Average loans and leases, excluding FDIC-supported loans, increased only $100 million, as most of the loan growth occurred near quarter-end.
• Net loan and lease charge-offs declined 51% and nonperforming lending-related assets declined 11% compared to the third quarter. The continued improvement in credit quality resulted in a fourth quarter negative provision for loan losses of $10 million. 
• The OTTI on CDO securities was primarily attributable to significant changes in modeling assumptions related to prepayment speeds and PDs on certain deferring bank holding company trust preferred securities.
• Tangible common equity per common share improved $0.71 to $20.95 from $20.24 in the third quarter.

"Credit quality and net interest income exceeded our expectations for the fourth quarter of 2012," said Harris H. Simmons, chairman and chief executive officer.  Mr. Simmons continued, "We expect continued reduction in problem loans in the near term, along with relatively stable net interest income, resulting from moderate loan growth offset by some continued net interest margin pressure."  Mr. Simmons concluded, "Over the next several quarters, we expect to execute several capital actions that will significantly reduce interest expense and dividends associated with legacy debt and preferred stock, which should have a favorable effect on our return on equity."

Reclassifications in Statement of Income

For the fourth quarter of 2012, approximately $9 million of credit card interchange fees were reclassified from interest and fees on loans to other service charges, commissions and fees.  In addition, $3 million of income on factored receivables was reclassified from other service charges, commissions and fees to interest and fees on loans. These reclassifications reduced net interest income by approximately $6 million and the net interest margin by 5 basis points for the fourth quarter of 2012. At December 31, 2012, the reclassifications related to factored receivables also increased loan and lease balances by approximately $96 million and the allowance for loan losses by $2 million, with a corresponding reduction in other assets of $94 million. The changes were made primarily to conform with prevailing reporting practices in the banking industry. Current and prior period amounts for all periods presented throughout this press release have been adjusted where appropriate so that amounts are on a comparable basis. There was no change in net earnings for any prior period presented.

Loans

Loans and leases, excluding FDIC-supported loans, increased $463 million on a net basis to $37.1 billion at December 31, 2012, compared to $36.7 billion at September 30, 2012. The increases were predominantly in commercial and industrial and 1-4 family residential loans and were widespread geographically. Decreases of $174 million in commercial owner occupied, construction and land development, and term commercial real estate loans partially offset increases in other loan categories. Most of this increase occurred during the month of December. Average loans and leases, excluding FDIC-supported loans, increased $100 million to $36.7 billion during the fourth quarter of 2012, compared to $36.6 billion during the third quarter of 2012.

Deposits

Average total deposits for the fourth quarter of 2012 increased $1.4 billion, or 3.3%, to $44.9 billion, compared to $43.5 billion for the third quarter of 2012. The increase resulted primarily from a higher level of average noninterest-bearing demand deposits, primarily in nonpersonal accounts, for the fourth quarter of 2012, which were $17.9 billion compared to $16.8 billion for the third quarter of 2012. The ratio of average loans to average deposits was 83% at December 31, 2012, compared to 86% at September 30, 2012.

Debt and Shareholders' Equity

The tangible common equity ratio was 7.09% at December 31, 2012, compared to 7.17% at September 30, 2012. The decline was primarily due to a 5% increase in total tangible assets, driven primarily by a 24% increase in cash-related balances that resulted from increased deposits late in the year. The estimated common equity tier 1 capital ratio was 9.78% at December 31, 2012, compared to 9.86% at September 30, 2012. 

The $89 million after-tax improvement in accumulated other comprehensive income (loss) ("AOCI") during the fourth quarter related primarily to CDO securities and consisted of $52 million due to the reduction of unrealized losses in AOCI from the OTTI discussed subsequently and $37 million due primarily to net fair value increases.

Net Interest Income

Net interest income (adjusted for the previously-discussed reclassifications) decreased 2% to $430 million for the fourth quarter of 2012, compared to $438 million for the third quarter of 2012. Net interest income during the fourth quarter was reduced by approximately $12 million for the discount amortization resulting from subordinated debt conversions and increased by $13 million from additional accretion on acquired FDIC-supported loans. The net interest margin decreased to 3.47% in the fourth quarter of 2012, compared to 3.58% in the third quarter of 2012. The decrease in the margin continues to reflect both increases in cash equivalents and other low-yielding assets, as well as lower yields on resetting or maturing older loans, which is expected to continue. New loan pricing has been relatively stable in recent months. The cost of interest-bearing deposits continued to decline and was 0.25% in the fourth quarter compared to 0.28% in the third quarter.

Noninterest Income

Noninterest income for the fourth quarter of 2012 was $54 million, compared to $125 million for the third quarter of 2012. The decrease was primarily due to the increased OTTI, partially offset by increased gains on CDO securities, as discussed subsequently.  Excluding the incremental pretax effect of these items compared to the third quarter, noninterest income was approximately $128 million in the fourth quarter.

CDO Investment Securities

During the fourth quarter of 2012, the Company recognized credit-related OTTI on CDOs of $83.8 million or $0.28 per diluted share, compared to $2.7 million or $0.01 per diluted share during the third quarter of 2012. The significant increase in OTTI this quarter compared to recent quarters resulted from (1) increasing our assumed probabilities of default ("PDs") for bank holding company issuers of trust preferred securities that are still deferring, and (2) increasing our near-term prepayment assumptions for some banks.  This quarter, the Company observed greater regulatory and restructuring risk than previously modeled in those deferrals that have not yet chosen to or been allowed to resume payments on trust preferred securities. Approximately 61% of the OTTI was attributable solely to the increased PDs. Also this quarter the Company observed a significant increase in prepayments from small bank holding companies, which led us to increase the assumed prepayment rates on issuers with less than $15 billion in assets. The Company also recognized $10.2 million or $0.03 per diluted share in gains during the quarter, compared to $3.0 million or $0.01 per diluted share in the third quarter, from cash principal payments on CDOs previously written down.

The following table stratifies the CDOs into performing tranches without credit impairment and nonperforming tranches at December 31, 2012:

The net unrealized pretax losses in AOCI improved to $718 million in the fourth quarter of 2012 from $857 million in the third quarter of 2012 due to OTTI and to significant improvement in credit spreads for junior tranches.  

Noninterest Expense

Noninterest expense for the fourth quarter of 2012 was $407 million compared to $395 million for the third quarter of 2012. The increase was due primarily to costs for legal-related matters and increased other real estate expense.

Asset Quality

Net loan and lease charge-offs decreased 51% to $19 million for the fourth quarter of 2012, compared to $38 million for the third quarter of 2012. The $19 million includes $5 million resulting from the new OCC regulatory guidance that requires the write-down of borrowers' loans discharged in a Chapter 7 bankruptcy even when the loans are performing. Gross charge-offs declined 7% compared to the third quarter and have declined 55% compared to the year-ago period. Recoveries increased to $36 million for the fourth quarter of 2012, compared to $20 million for the third quarter of 2012. Net charge-offs declined primarily in commercial- and commercial real estate-related loans.

Nonperforming lending-related assets declined 11% to $746 million at December 31, 2012 from $838 million at September 30, 2012. Nonaccrual loans declined 10% to $647 million at December 31, 2012 (including $6 million resulting from the new OCC guidance) from $719 million at September 30, 2012. The ratio of nonperforming lending-related assets to loans and leases and other real estate owned decreased to 1.96% at December 31, 2012, compared to 2.23% at September 30, 2012.

Classified loans, excluding FDIC-supported loans, decreased approximately 2% to $1.77 billion at December 31, 2012, compared to $1.81 billion at September 30, 2012. Approximately 79% of classified loans were current as to principal and interest for the fourth quarter of 2012, compared to 76% for the third quarter of 2012.

The provision (credit) for loan losses was $(10.4) million for the fourth quarter of 2012, compared to $(1.9) million for the third quarter of 2012. The allowance for credit losses was $1.0 billion, or 2.66% of loans and leases at December 31, 2012, essentially unchanged from $1.0 billion, or 2.77% of loans and leases at September 30, 2012. 

Conference Call

Zions will host a conference call to discuss these fourth quarter results at 5:30 p.m. ET this afternoon (January 28, 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 83645774, 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, January 28, 2013, until midnight ET on Monday, February 5, 2013, 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 480 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.

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