Zions Bancorporation Reports Second Quarter 2015 Results

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Jul 20, 2015, 04:10 ET

SALT LAKE CITY, July 20, 2015 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported second quarter net income of $14.0 million and a net loss applicable to common shareholders of $(1.1) million, or $(0.01) per diluted common share. During the second quarter, the Company sold the remaining portfolio of its collateralized debt obligation ("CDO") securities and recognized a one-time pretax loss of approximately $137 million, or $0.42 after-tax per diluted common share. Shareholders' equity was not adversely affected as the loss had been previously recognized in accumulated other comprehensive income ("AOCI"). Excluding the loss, net earnings applicable to common shareholders was $83.4 million, or $0.41 per diluted common share, for the second quarter of 2015, compared to $75.3 million, or $0.37 per diluted common share, for the first quarter of 2015.

Second Quarter 2015 Highlights

Credit quality metrics were generally stable with a decrease in nonaccruing loans and a slight increase in classified loans from the prior quarter. Annualized net charge-offs were 0.11% of average loans. The overall effect contributed to a $0.6 million provision for loan losses.
Total noninterest expense was $404 million during the second quarter and $802 million year-to date. Certain one-time and seasonal expenses during the second quarter of 2015 were partially offset by other expense credits, including insurance recoveries of $9.2 million. The Company is maintaining its commitment to hold noninterest expenses below $1.6 billion in 2015 and 2016.
Loan balances, excluding energy-related loans, increased $128 million during the second quarter compared to a $25 million increase during the first quarter calculated on the same basis. Energy-related loans declined $284 million linked quarter. Overall, net loans and leases declined $156 million during the second quarter.
Net interest income increased slightly from the prior quarter; however, the net interest margin declined 4 basis points to 3.18%, primarily driven by an increased concentration of cash and securities. Loan yields were generally stable with the prior quarter.
Noninterest income, excluding securities gains and losses, increased due to continued success in sales of treasury management products and credit card fee growth.
Total deposits increased at an annualized rate of 6.8% during the second quarter, led by strength in noninterest-bearing deposits.

"We are pleased to have completed the disposition of the remaining collateralized debt obligations in our securities portfolio during the second quarter, a move which both reduces risk and will allow us to deploy the cash received in more productive and profitable earning assets," said Harris H. Simmons, chairman and chief executive officer. "We are also encouraged by the Company's continued low credit costs. Although the effects of the energy price decline are not yet fully manifest, we are encouraged with the results of the spring borrowing base redetermination process, the strength of the capital markets in recapitalizing a substantial number of energy companies, and other factors – including strong portfolio management by our energy lending team – which contributed to linked-quarter stability in nonaccrual energy loans."

Mr. Simmons continued, "Total loan growth was the major soft spot of the quarter, although much of that was primarily attributable to higher prepayment rates within the energy sector." Mr. Simmons concluded, "Finally, I am very appreciative of the great work being performed by so many of my colleagues throughout Zions Bancorporation with respect to the various initiatives we've undertaken to simplify our organizational structure and increase our productivity. We are fully committed to achieving the goals we announced during the quarter."

Shareholders' Equity

Tangible book value per common share improved to $26.95 at June 30, 2015, compared to $26.64 at March 31, 2015. Compared to June 30, 2014, tangible book value per common share improved by approximately 7.2%.

The estimated Basel III common equity tier 1 ("CET1") capital ratio on a 2015 phase-in basis was 11.91% at June 30, 2015. As was previously announced, due to the sale of the remainder of its CDO portfolio, the Company experienced a reduction of its risk-weighted assets. However, regulatory agencies recently published a frequently-asked question document regarding the risk weighting of certain construction and land development loans. As a result of its review of the FAQ, the Company increased the risk-weighting of the portion of its construction and land development portfolio characterized as high volatility commercial real estate ("HVCRE"), which resulted in an increase of risk-weighted assets of approximately $0.75 billion at June 30, 2015. The Company's HVCRE interpretation includes loans on construction projects that have greater than 15% cash equity, are completed and cash flowing, but have not been converted to a "permanent loan." On this basis, the CET1 capital ratio was estimated to be 11.76% at March 31, 2015. Although the risk weighting of these loans was adjusted, the risk profile of these loans is not materially different than was previously reported; only 1% of construction and land development loans are on nonaccrual status, unchanged from the prior quarter, and the Company has experienced net recoveries on such loans for several consecutive quarters.

Accumulated other comprehensive income (loss) improved to $(35) million at June 30, 2015 from $(115) million at March 31, 2015, primarily as a result of the CDO sales.

Net Interest Income

Net interest income increased to $424 million in the second quarter of 2015 from $417 million in the first quarter of 2015. The increase resulted primarily from an additional day of income. The net interest margin decreased to 3.18% in the second quarter of 2015, compared to 3.22% in the first quarter of 2015, primarily due to an increased concentration of cash and securities. During the quarter, as it executes its strategy to improve yields on interest earning assets, the Company increased its government agency residential mortgage backed securities by $583 million and increased its interest rate swap portfolio by approximately $438 million.

Noninterest Income

Excluding the losses from sales of CDOs, noninterest income for the second quarter of 2015 was $137 million, compared to $122 million for the first quarter of 2015. Service charges and fees on deposit accounts and other service charges, commissions and fees increased 4.1% during the first half of 2015 compared to the first half of 2014. The increases were primarily driven by credit card and interchange fees, mortgage loan fees, and interest rate swap management fees. Other noninterest income included a $2.4 million gain related to a branch sale.

During the second quarter of 2015, the Company received approximately $13 million in paydowns and payoffs on its CDO portfolio and by mid-June the Company sold its remaining portfolio of CDO securities ($574 million amortized cost), resulting in net realized pretax losses of approximately $137 million. These sales were accretive to shareholders' equity as the realized losses were somewhat less than the unrealized losses recorded in AOCI at March 31, 2015.

Noninterest Expense

Noninterest expense for the second quarter of 2015 was $404 million, compared to $397 million for the first quarter of 2015 and $406 million for the second quarter of 2014. Salaries and employee benefits increased by $7.6 million as a result of annual incentive stock awards and variable compensation accruals driven by price changes in the Company's common stock. Other noninterest expense declined primarily due to $9.2 million in insurance recoveries.

Supplemental Presentation and Conference Call

Zions has posted a supplemental presentation to its website, which will be used to discuss these second quarter results at 5:30 p.m. ET this afternoon (July 20, 2015). Media representatives, analysts, investors, and the public are invited to join this discussion by calling 253-237-1247 (domestic and international) and entering the passcode 71960337, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation website at 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 received 24 "Excellence" awards by Greenwich Associates for the 2014 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 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. Statements based on historical data are not intended and should not be understood to indicate the Company's expectations regarding future events. 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 include the actual amount and duration of declines in the price of oil and gas as well as other factors 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)*	June 30, 2015		March 31, 2015		December 31, 2014		September 30, 2014		June 30, 2014
BALANCE SHEET
Loans and leases, net of allowance	$	39,414,609	$	39,560,101	$	39,458,995	$	39,129,295	$	38,954,172
Total assets	58,365,459		57,555,931		57,208,874		55,458,870		55,111,275
Deposits	48,937,124		48,123,360		47,848,075		46,266,562		45,672,140
Total shareholders' equity	7,530,175		7,454,298		7,369,530		7,322,159		6,700,090

STATEMENT OF INCOME
Net interest income	$	423,704	$	417,346	$	430,430	$	416,819	$	416,284
Taxable-equivalent net interest income	428,015		421,581		434,789		420,850		420,202
Provision for loan losses	566		(1,494)		11,587		(54,643)		(54,416)
Total noninterest income	421		121,822		129,396		116,071		124,849
Total noninterest expense	404,100		397,461		422,666		438,536		406,027

Net earnings (loss) applicable to common shareholders	(1,100)		75,279		66,761		79,127		104,490

PER COMMON SHARE
Net earnings (loss) per diluted common share	$	(0.01)	$	0.37	$	0.33	$	0.40	$	0.56
Dividends	0.06		0.04		0.04		0.04		0.04
Book value per common share ¹	32.03		31.74		31.35		31.14		30.77
Tangible book value per common share¹	26.95		26.64		26.23		26.00		25.13

SELECTED RATIOS
Return on average assets	0.10%		0.66%		0.57%		0.69%		0.87%
Return on average common equity	(0.07)%		4.77%		4.06%		5.10%		7.30%

Tangible return on avg tangible common equity	0.03%		5.80%		4.95%		6.19%		9.07%
Net interest margin	3.18%		3.22%		3.25%		3.20%		3.29%
Efficiency ratio	71.4%		72.3%		74.1%		73.0%		73.3%

Ratio of nonperforming lending-related assets to loans and leases and other real estate owned	0.96%		0.99%		0.81%		0.84%		0.95%

Annualized ratio of net loan and lease charge-offs to average loans	0.11%		(0.17)%		0.17%		0.11%		0.06%

Ratio of total allowance for credit losses to loans and leases outstanding ¹	1.72%		1.75%		1.71%		1.74%		1.95%

Capital Ratios ¹
Tangible common equity ratio	9.58%		9.58%		9.48%		9.70%		8.60%
Basel III: ²
Common equity tier 1 capital	11.91%		11.76%
Tier 1 leverage	11.67%		11.75%
Tier 1 risk-based capital	14.15%		13.93%
Total risk-based capital	16.20%		15.98%
Basel I:
Tier 1 common equity					11.92%		11.86%		10.45%
Tier 1 leverage					11.82%		11.87%		11.00%
Tier 1 risk-based capital					14.47%		14.43%		13.00%
Total risk-based capital					16.27%		16.28%		14.90%

Weighted average common and common-equivalent shares outstanding	202,887,762		202,944,209		203,277,500		197,271,076		185,286,329
Common shares outstanding ¹	203,740,914		203,192,991		203,014,903		202,898,491		185,112,965


¹	At period end.
²	Basel III capital ratios became effective January 1, 2015 and are based on a 2015 phase-in. The ratios at June 30, 2015 and March 31, 2015 are estimates; the March 31, 2015 ratios vary from previous disclosures as the Company refines its calculation methodology. See previous discussion in this press release under "Shareholders' Equity."