Zions Bancorporation Reports Third Quarter 2017 Financial Results

SALT LAKE CITY, October 23, 2017 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the third quarter of 2017 of $152 million, or $0.72 per diluted common share, compared to net earnings applicable to common shareholders of $154 million, or $0.73 per diluted common share, for the second quarter of 2017 and net earnings applicable to common shareholders of $117 million, or $0.57 per diluted common share, for the third quarter of 2016.

Third Quarter 2017 Highlights

Net Interest Income and Net Interest Margin

  • Net interest income was $522 million, up 11% from 2Q16
  • NIM was 3.45% compared with 3.36% in 3Q16

Operating Performance

  • Pre-provision net revenue ("PPNR") was $257 million, up 18%
  • Adjusted PPNR was $251 million, up 20%
  • Noninterest expense was $413 million, compared with $403 million
  • Adjusted noninterest expense was $414 million, compared with $404 million
  • Efficiency ratio was 62.3%, compared with 65.9%

Loans and Credit Quality

  • Net loans and leases were $44.2 billion, compared with $42.5 billion
  • Provision for credit losses was $1 million, compared with $16 million
  • Net charge-offs were $8 million, compared with $30 million

Capital Returns

  • Tangible return on average tangible common equity was 9.8%, compared with 7.9%
  • Common stock repurchases of $115 million, 2.5 million shares, or 1.3% of shares outstanding as of June 30, 2017, during the quarter
  • Common dividend increased to $0.12 per share from $0.08 per share

Notable Items

  • Hurricane Harvey non-credit related impact of $6 million recognized in noninterest expense

CEO Commentary

Harris H. Simmons, Chairman and CEO, commented, "Our third quarter earnings reflect moderate loan growth and continued improvement in credit quality. Furthermore, the year-to-date efficiency ratio, at 62.6%, is on track to meet the cost objective we established for 2017. The quarterly results were impacted by Hurricane Harvey, which led us to provide financial relief to affected employees in Texas, and to set aside additional reserves for any credit-related impact from the storm." Mr. Simmons continued, "We are pleased with the quarterly earnings result, and look forward to continued progress in simplifying our business, meeting our customers' needs and improving our profitability in the year ahead."

Net Interest Income

Net interest income increased to $522 million in the third quarter of 2017 from $469 million. The $53 million, or 11.3%, increase in net interest income was due to a $35 million increase in interest on securities resulting from a 52.5% increase in the average investment securities portfolio and a $31 million increase in interest and fees on loans resulting from loan growth in commercial and consumer loans and increases in short-term interest rates. Interest expense increased $13 million primarily due to an increase in wholesale borrowings.

The net interest margin decreased to 3.45% in the third quarter of 2017, compared with 3.52% in the second quarter of 2017, primarily as a result of $16 million of interest income recoveries on four loans that occurred in the second quarter of 2017 that did not recur in the same magnitude in the current quarter. Excluding that effect, the net interest margin increased slightly from the prior quarter

Noninterest Income

Total noninterest income for the third quarter of 2017 decreased by 4.1% to $139 million from $145 million. Customer-related fees decreased by $4 million in the third quarter of 2017 due to a $5 million decline in loan sales and servicing income primarily resulting from lower sales of consumer mortgages and a $2 million valuation adjustment on a loan held for sale. Additionally, service charges and fees on deposit accounts declined $3 million. Income from net securities gains was $5 million representing a decrease of $3 million the third quarter of 2016 as a result of a smaller increase in the market values of the Company's Small Business Investment Company ("SBIC") investments in the third quarter of 2017. Other noninterest income included a gain of $1 million related to the sale of three branch properties.

Noninterest Expense

Noninterest expense for the third quarter of 2017 was $413 million, which included $6 million of noninterest expense related to property damage and community and employee support as a result of Hurricane Harvey, compared with $403 million for the third quarter of 2016. The Company has provided approximately $1.5 million of support, primarily in the form of grants and donations, to its employees and the local community affected by Hurricane Harvey. Additionally, the Company has made over 300 interest-free loans totaling more than $5 million to employees impacted by the natural disaster.

Adjusted noninterest expense for the third quarter of 2017 was $414 million compared with $404 million for the same prior year period. The $10 million, or 2.5%, increase in total and adjusted noninterest expense from the third quarter of 2016 was primarily driven by the expense associated with Hurricane Harvey and an increase in salaries and employee benefits, partially offset by a $7 million decrease in other noninterest expense primarily due to legal accruals that occurred in the third quarter of 2016.

The $11 million increase in salaries and employee benefits during the third quarter was primarily due to an increase in incentive compensation accruals. Additionally, healthcare costs increased $3 million from the same prior year period and are expected to remain consistent with the current quarter. 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 60% range. For information on non-GAAP financial measures, see pages 16-19.

Asset Quality

Asset quality 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 portfolio, highlighted by decreases in classified and nonperforming assets. Classified loans and nonperforming assets for the oil and gas-related portfolio decreased $274 million and $137 million, respectively, from the third quarter of 2016.

The Company provided $1 million for credit losses during the third quarter of 2017 ($5 million provision for the allowance for loan and lease losses and a reserve reduction of $4 million for unfunded lending commitments), compared with $10 million during the second quarter of 2017 and $16 million for the third quarter of 2016. The $1 million provision is the result of a $34 million qualitative increase in the allowance for credit losses due to potential losses caused by Hurricane Harvey, offset by decreasing default and loss rates, in addition to improving credit quality metrics in the oil and gas-related portfolio. The allowance for credit losses was $600 million at September 30, 2017, compared with $659 million at September 30, 2016, or 1.36% and 1.55% of loans and leases, respectively. The allowance for credit losses for oil and gas-related loans remains above 7% of the portfolio.

Loans and Leases

Loans and leases, net of unearned income and fees, increased $1.6 billion, or 3.8%, to $44.2 billion at September 30, 2017 from $42.5 billion at September 30, 2016. When compared with the same prior year period, commercial loans increased $915 million and consumer loans increased $1.0 billion, predominantly in 1-4 family residential loans. Commercial real estate loans declined slightly from the same prior year period, primarily due to active management of credit risk concentrations. Unfunded lending commitments increased to $19.8 billion at September 30, 2017, compared with $19.1 billion at September 30, 2016.

Deposits

Total deposits increased by $1.3 billion, or 2.5%, from $50.8 billion at September 30, 2016. Average total deposits increased to $51.9 billion for the third quarter of 2017 compared with $50.7 billion for the third quarter of 2016. Average noninterest bearing deposits increased to $23.8 billion for the third quarter of 2017, compared with $22.5 billion for the third quarter of 2016, and were 46% of average total deposits compared with 44% for the same prior year period.

Shareholders' Equity

During the third quarter of 2017, the Company increased its common stock dividend to $0.12 cents per share from $0.08 cents per share in second quarter of 2017. Common stock repurchases during the current quarter totaled $115 million, or 2.5 million shares, which is equivalent to 1.3% of common stock as of June 30, 2017, at an average price of $45.45 per share. The Company has repurchased $250 million, or 6.1 million shares, of common stock during the last four quarters at an average price of $40.92 per share. The Company has $350 million of buyback capacity remaining in its 2017 capital plan, which spans the timeframe of July 2017 to June 2018. Weighted average diluted shares increased by 4.4 million compared with the third 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 from September 30, 2016 to September 30, 2017 as a result of the Company redeeming all outstanding shares of its 7.90% Series F Non-Cumulative Perpetual Preferred Stock during the second quarter of 2017. Preferred dividends are expected to be $9.6 million for the fourth quarter of 2017 and second quarter of 2018 and $7.5 million for the first and third quarters of 2018.

Tangible book value per common share increased to $30.93 at September 30, 2017, compared with $29.16. The estimated Basel III common equity tier 1 ("CET1") capital ratio was 12.2% at September 30, 2017 compared with 12.0%. 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 financial measures, see pages 16-19.

Supplemental Presentation and Conference Call

Zions has posted a supplemental presentation to its website, which will be used to discuss these third quarter results at 5:30 p.m. ET this afternoon (October 23, 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 82373635, 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. 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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