Zions Bancorporation Reports Second Quarter 2017 Financial Results

SALT LAKE CITY, July 25, 2017 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the second quarter of 2017 of $154 million, or $0.73 per diluted common share, compared to net earnings applicable to common shareholders of $129 million, or $0.61 per diluted common share, for the first quarter of 2017 and net earnings applicable to common shareholders of $91 million, or $0.44 per diluted common share, for the second quarter of 2016.

Second Quarter 2017 Highlights

Net Interest Income and Net Interest Margin

  • Net interest income was $528 million, up 14% from 2Q16
  • NIM was 3.52% compared with 3.39% in 2Q16

Operating Performance

  • Pre-provision net revenue ("PPNR") was $264 million, up 23% from 2Q16
  • Adjusted PPNR was $268 million, up 27% from 2Q16
  • Noninterest expense was $405 million, compared with $382 million in 2Q16
  • Adjusted noninterest expense was $399 million, compared with $385 million in 2Q16
  • Efficiency ratio was 59.8%, compared with 64.6% for 2Q16

Loans and Credit Quality

  • Net loans and leases were $43.7 billion, compared with $42.5 billion at June 30, 2016
  • Provision for credit losses was $10 million, compared with $31 million in 2Q16
  • Net charge-offs were $7 million, compared with $39 million in 2Q16

Capital Returns

  • Tangible return on average tangible common equity was 10.2%, compared with 6.3% in 2Q16
  • Common stock repurchases of $45 million during the quarter
  • Diluted common shares were 208.2 million, compared with 204.5 million in 2Q16

Notable Items

  • Interest income recoveries of $16 million from four loans in 2Q17
  • The tax rate in 2Q17 was 32.3% and is expected to be 34% to 35% for the rest of 2017
  • Preferred stock redemption of $144 million resulted in a $2 million reduction to net earnings applicable to common shareholders

CEO Commentary

Harris H. Simmons, Chairman and CEO, commented, "We are encouraged with the solid results of the second quarter. Loan growth exceeded expectations and was diversified across commercial and consumer categories and also by geography. We experienced continued strong revenue growth, and expenses – both interest expense from deposits and operating expense – were well-controlled, resulting in a solid increase in pre-provision net revenue. Credit costs improved substantially over prior periods, and we expect such costs to remain low for the foreseeable future." Mr. Simmons concluded, "We are particularly enthusiastic about our ability to return substantial capital to shareholders over the next several quarters, which should contribute to further improvement in return on equity."

Net Interest Income

Net interest income increased to $528 million in the second quarter of 2017 from $489 million in the first quarter of 2017. The 8% increase in net interest income was due to a $36 million increase in interest and fees on loans resulting from loan growth in commercial and consumer loans, increases in short-term interest rates, the recent increases to the investment securities portfolio and several large interest income recoveries. The Company recognized $16 million from interest income recoveries related to four loans in the second quarter. Recovered interest income in the second quarter was $6 million from commercial and industrial loans and $10 million from commercial real estate loans. Interest expense increased $4 million during the quarter primarily due to an increase in wholesale borrowings.

The net interest margin increased to 3.52% in the second quarter of 2017, compared with 3.38% in the first quarter of 2017, primarily as a result of a strong 24 bps increase in the loan yield partially offset by a slight increase in the cost of deposits during the quarter. The loan yield in the second quarter of 2017 increased to 4.38% from 4.14% in the first quarter of 2017; approximately 15 bps of the increase was from the previously mentioned interest income recoveries, with the remaining 9 bps of the increase attributable to the recent increases in short-term interest rates.

Noninterest Income

Total noninterest income for the second quarter of 2017 remained flat at $132 million compared with the first quarter of 2017. Customer-related fees increased by $6 million in the second quarter of 2017 due to a $7 million increase in other service charges, commissions and fees which was primarily driven by increased sales of interest rate swaps and lending-related fees. The increase in customer-related fees from the first quarter of 2017 was offset by declines in investment income and securities gains as a result of first quarter increases in market values of the Company’s Small Business Investment Company (“SBIC”) investments that did not recur in similar magnitudes in the second quarter of 2017. Customer-related fees increased by $3 million compared with the second quarter of 2016, primarily due to the same items that impacted the change from the first quarter of 2017.

Noninterest Expense

Noninterest expense for the second quarter of 2017 was $405 million, compared with $414 million for the first quarter of 2017, and $382 million for the second quarter of 2016. The 2% decline in total noninterest expense from the first quarter of 2017 was driven by a $20 million decrease in salaries and employee benefits, partially offset by an $8 million increase in the provision for unfunded lending commitments.

  • The decline in salaries and employee benefits during the second quarter relative to the prior quarter was primarily due to factors that are seasonally high in the first quarter, such as payroll tax expense, stock-based compensation, retirement plan contribution matching and $5 million of severance in the first quarter of 2017 that did not recur in the second quarter.
  • Healthcare costs increased $2 million from the prior quarter and are expected to remain higher throughout the year, consistent with the current quarter level.
  • Other noninterest expense increased $3 million from the prior quarter, primarily attributable to the sharing of revenue with the FDIC from previously discussed interest income recoveries on loans purchased from the FDIC, per the company’s 2009 agreement.

Noninterest expense increased by $23 million from the the second quarter of 2016 primarily due to an increase in the provision for unfunded lending commitments, the aforementioned FDIC revenue sharing agreement, and an increase in FDIC premiums due a higher deposit base and the recent change in deposit insurance assessments as a result of the Dodd-Frank Act.

The Company is committed to its expense and efficiency ratio goals for 2017, which are to hold adjusted noninterest expense growth to 2-3% in 2017, and to achieve an efficiency ratio in the low 60s. For information on non-GAAP measures see pages 16-19.

Asset Quality

Asset quality remained strong and improved for the entire loan portfolio when compared with the prior quarter and the same prior year period, primarily due to an improvement in the oil and gas-related loan portfolio highlighted by decreases in classified and nonperforming assets. Classified loans and nonperforming assets for the oil and gasrelated loans decreased $249 million and $37 million, respectively, from the second quarter of 2016.

The Company provided $10 million for credit losses during the second quarter of 2017, compared with $18 million during the first quarter of 2017 and $31 million for the second quarter of 2016. The $10 million provision was positively affected by several large loan recoveries recorded during the second quarter of 2017. The allowance for credit losses was $607 million at June 30, 2017, compared with $673 million million at June 30, 2016, which was 1.39% and 1.58% of loans and leases, respectively. The allowance for credit losses for oil and gas-related loans decreased during the second quarter of 2017, but continues to exceed 8% of the portfolio.

Loans and Leases

Loans and leases, net of unearned income and fees, increased $941 million, or 2.2% (8.8% on an annualized basis based on second quarter growth) to $43.7 billion at June 30, 2017 from $42.7 billion at March 31, 2017. During the second quarter of 2017, commercial loans increased $647 million and consumer loans increased $302 million, predominantly in 1-4 family residential loans. Unfunded lending commitments were stable at $19.3 billion at June 30, 2017, compared with $19.4 billion at March 31, 2017.

Deposits

Total deposits declined by $1.1 billion, or 2.1%, to $52.4 billion at June 30, 2017 from $53.5 billion at March 31, 2017, but increased by $2.1 billion, or 4.2%, from $50.3 billion at June 30, 2016. Average total deposits remained relatively flat and were $52.3 billion for the second quarter of 2017 compared with $52.2 billion for the first quarter of 2017. Average noninterest bearing deposits increased slightly to $23.8 billion for the second quarter of 2017, compared with $23.5 billion for the first quarter of 2017, and were 46% of average total deposits.

Shareholders' Equity

During the second quarter of 2017, the Company continued its common stock buyback program and repurchased $45 million of common stock during the quarter at an average price of $40.99 per share, and has repurchased $180 million of common stock since July 1, 2016 at an average price of $35.66 per share. Despite the share repurchases during the past four quarters, the weighted average diluted shares increased by 3.6 million compared with the second quarter of 2016 primarily due to the dilutive impact of warrants that have been outstanding since 2008 (“TARP” warrants - NASDAQ: ZIONZ) and 2010 (NASDAQ: ZIONW).

Preferred stock decreased by $144 million during the second quarter of 2017 as a result of the Company redeeming all outstanding shares of its 7.90% Series F Non-Cumulative Perpetual Preferred Stock. The total one-time reduction to net earnings applicable to common shareholders associated with the preferred stock redemption was $2 million. Preferred dividends are expected to be $7.5 million for the third quarter of 2017 and first quarter of 2018 and $9.6 million for the fourth quarter of 2017 and the second quarter of 2018.

Tangible book value per common share increased to $30.50 at June 30, 2017, compared with $29.61 at March 31, 2017. The estimated Basel III common equity tier 1 (“CET1”) capital ratio was 12.3% at June 30, 2017 compared with 12.2% at March 31, 2017; Basel III capital ratios are based on the applicable phase-in periods, however, the fully phased-in ratio is not substantially different. For information on non-GAAP measures see pages 16-19.

On June 28, the Board of Governors of the Federal Reserve System notified Zions that the Federal Reserve did not object to Zions’ board-approved 2017 capital plan. Zions’ capital plan for the period spanning July 1, 2017 through June 30, 2018 includes the following capital actions:

  • Increasing the common dividend to $0.24 per share by Q2 2018, following the path of:
    • $0.12 per share in Q3 2017
    • $0.16 per share in Q4 2017
    • $0.20 per share in Q1 2018
    • $0.24 per share in Q2 2018
    The schedule above is indicative of approximately $140 million in total common dividends over the four-quarter period.
  • Up to $465 million of common stock redemption.

Capital actions are subject to final approval by Zions Bancorporation's board of directors, and may be influenced by, among other things, actual earnings performance, business needs and prevailing economic conditions.

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 25, 2017). 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 52517783, 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 with total assets exceeding $65 billion. Zions operates under local management teams and distinct brands in 11 western 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 is a consistent top recipient of Greenwich Excellence awards in banking. In addition, Zions is included in the S&P 500 and NASDAQ Financial 100 indices. Investor information and links to local banking brands 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 or intentions regarding 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 presentation. 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, our ability to meet our efficiency and noninterest expense goals, the rate of change of interest sensitive assets and liabilities relative to changes in benchmark interest rates 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.

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