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Zions Bancorporation, N.A. Reports Third Quarter 2018 Financial Results

Zions Bancorporation, N.A. Reports Third Quarter 2018 Financial Results

SALT LAKE CITY, Oct. 22, 2018 /PRNewswire/ -- Zions Bancorporation, N.A. (NASDAQ: ZION) ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the third quarter of 2018 of $215 million, or $1.04per diluted common share, compared with net earnings applicable to common shareholders of $152 million, or $0.72per diluted common share, for the third quarter of 2017 and net earnings applicable to common shareholders of $187 million, or $0.89 per diluted common share, for the second quarter of 2018.

THIRD QUARTER HIGHLIGHTS

Net Interest Income and NIM

  • Net interest income was $565 million, up 8%
  • NIM was 3.63%, compared with 3.45%

Operating Performance

  • Pre-provision net revenue ("PPNR") was $286 million, compared with $257 million
  • Adjusted PPNR was $291 million, compared with $251 million
  • Noninterest expense was $420 million, compared with $413 million
  • Adjusted noninterest expense was $416 million, compared with $414 million
  • Efficiency ratio was 58.8%, compared with 62.3%

Loans and Credit Quality

  •  Net loans and leases were $45.8 billion, up 4%
  •  Classified loans were $784 million, down 37%; and nonperforming assets were $292 million, down 38%
  •  Provision for credit losses was $(11) million, compared with $1 million
  •  Net credit recoveries of 0.01% of average loans, compared with net charge-offs of 0.07% of average loans

Capital Returns

  • Return on average tangible common equity was 14.2%, compared with 9.8%
  • Common stock repurchases of $185 million, 3.5 million shares, or 1.8% of shares outstanding as of June 30, 2018
  • Common dividend increased to $0.30 per share from $0.12 per share

Notable Items

  • The Bank Holding Company was merged into the Bank at the end of the third quarter of 2018
  • Received notification in September from the Financial Stability Oversight Council that the Company is no longer considered a systemically important financial institution

CEO COMMENTARY

Harris H. Simmons, Chairman and CEO, commented, “We’re very pleased with our results for the third quarter with earnings per share up 44% from last year’s third quarter, and an increase of 17% over the results of the prior quarter. These results reflect consistent revenue growth, disciplined expense management and continued strong credit performance. We increased our dividend by 25% during the quarter in addition to repurchasing 3.5 million shares of our common stock. And we successfully completed the merger of  our holding company into its subsidiary bank, resulting in the creation of a publicly traded national bank, Zions Bancorporation, N.A., as our top-level legal entity, simplifying our organization’s structure and the resulting regulatory framework.”

RESULTS OF OPERATIONS

Net Interest Income and Margin

Net interest income increased to $565 million in the third quarter of 2018 from $522 million in the third quarter of 2017. The $43 million, or 8%, increase in reported net interest income was attributable to a $69 million increase in interest and fees on loans, resulting from increases in short-term interest rates and loan growth in consumer and commercial loans, partially offset by an increase to interest expense. The $31 million increase in interest expense was primarily due to higher rates paid on deposits and an increase in interest paid on short and long-term borrowings. Net interest income for the current quarter benefited from $3 million of interest income recoveries of at least $1 million per loan, while there were no such recoveries in the same prior year period.

The yield on interest earning assets increased 13 basis points, compared with the second quarter of 2018, and 39 basis points, compared with the third quarter of 2017. When adjusted for interest recoveries of $3 million in the third quarter of 2018 and $1 million in the second quarter of 2018, the yield on interest earning assets increased 12 basis points compared with the second quarter of 2018, and 37 basis points, compared with the third quarter of 2017.

The effective rate on total deposits and interest-bearing liabilities increased to 0.45% for the third quarter of 2018, from 0.40% for the second quarter of 2018, and 0.23% for the third quarter of 2017. The increase from both prior periods was primarily due to an increase in both the rate paid on short and long-term borrowings and deposits as a result of changes in short-term interest rates and a change in the overall composition of balance sheet funding. The total annualized cost of deposits for the third quarter of 2018 was 0.28%, compared with 0.22% for the second quarter of 2018, and 0.12% for the third quarter of 2017.

The net interest margin increased to 3.63% in the third quarter of 2018, compared with 3.56% in the second quarter of 2018, and 3.45% in the same prior year period. Excluding the previously described effect of interest recoveries and adjusting the prior year period for the effect of the change to the corporate tax rate on fully taxable equivalent yields, the net interest margin would have been 3.61% in the current period, which compares with 3.55% and 3.42% in the prior quarter and the year ago period, respectively.

Noninterest Income

Total noninterest income for the third quarter of 2018 decreased by $3 million, or 2%, to $136 million from $139 million for the third quarter of 2017, primarily due to a $6 million decrease in net securities gains. In the third quarter of 2017 the Company’s Small Business Investment Company (“SBIC”) investments increased in market value compared with a slight decline in market value in the current quarter. These decreases in noninterest income were partially offset by a $3 million, or 2%, increase in customer-related fees, primarily related to increased loan syndication fees, bankcard fees, corporate investment services and wealth management income.

Noninterest Expense

Noninterest expense for the third quarter of 2018 was $420 million, compared with $413 million for the third quarter of 2017. Salaries and employee benefits increased $13 million primarily due to an $8 million increase in base salaries due to increased headcount and annual merit increases and a $2 million increase in incentive compensation. The provision for unfunded lending commitments increased by $4 million, primarily due to increased unfunded lending commitments and was partially offset by credit quality improvement in the oil and gas related portfolio. Other noninterest expense decreased by $8 million, primarily due to reduced operational losses, lower regulatory fees, and other miscellaneous expenses in the third quarter of 2018. The decrease in noninterest expense was partially offset by an increase in FDIC premiums due to a $4 million expense in the third quarter of 2018 that represents the cumulative effect of an adjustment related to the estimated uninsured deposits since the consolidation of bank charters.

Our efficiency ratio improved to 58.8% in the third quarter of 2018, compared with 60.9% in the second quarter of 2018, and 62.3% in the third quarter of 2017. Adjusted noninterest expense for the third quarter of 2018 increased $2 million to $416 million, compared with $414 million for the same prior year period. For information on non-GAAP financial measures, including variances between noninterest expense and adjusted noninterest expense, see pages 16-19.

Income Taxes

Our income tax rate was 23.6% for the third quarter of 2018, compared with 22.1% for the second quarter of 2018 and 34.2% for the third quarter of 2017. The income tax rates for 2018 were positively impacted by the decrease in the corporate federal income tax rate to 21% from 35%, effective January 1, 2018. The increase in the income tax rate from the second quarter of 2018 to the third quarter of 2018 was primarily due to decreased tax benefits from sharebased compensation activity.

BALANCE SHEET ANALYSIS

Asset Quality

Asset quality continued to improve for the entire loan portfolio when compared with the prior quarter and the same prior year period, primarily due to continued improvements in the oil and gas-related portfolio. The Company recorded an $(11) million provision for credit losses during the third quarter of 2018, compared with $12 million during the second quarter of 2018, and $1 million for the third quarter of 2017. The $(11) million provision primarily reflects net recoveries and ongoing improvements of credit quality metrics in the entire loan portfolio, partially offset by increases in qualitative adjustments mostly related to economic uncertainty and potential trade disruptions. The allowance for loan losses was $480 million at September 30, 2018, compared with $541 million at September 30, 2017, or 1.05% and 1.23% of loans and leases, respectively.

Loans and Leases

Loans and leases, net of unearned income and fees, increased $1.7 billion, or 4%, to $45.8 billion at September 30, 2018 from $44.2 billion at September 30, 2017. The largest increases were in commercial loans and consumer loans. Within commercial loans, municipal and owner occupied loans increased $490 million and $466 million, respectively. The increase in consumer loans was primarily in 1-4 family residential loans, which increased $517 million. Term commercial real estate loans continued to decline slightly from the prior year, reflecting heightened levels of payoffs and underwriting restraint in a highly competitive lending market. Unfunded lending commitments, which includes letters of credit, increased to $21.9 billion at September 30, 2018, compared with $19.8 billion at September 30, 2017.

Deposits

Total deposits increased by $1.7 billion, or 3%, from $52.1 billion at September 30, 2017. Average total deposits increased to $53.6 billion for the third quarter of 2018 compared with $51.9 billion for the third quarter of 2017. Average noninterest bearing deposits increased slightly to $24.0 billion for the third quarter of 2018, compared with $23.8 billion for the third quarter of 2017, and were approximately 45% of average total deposits for both periods.

Shareholders’ Equity

During the third quarter of 2018, the Company increased its common stock dividend to $0.30 per share from $0.24 per share in the second quarter of 2018. Common stock repurchases during the current quarter totaled $185 million, or 3.5 million shares, which is equivalent to 1.8% of common stock outstanding as of June 30, 2018. During the last four quarters the Company has repurchased $535 million, or 10.1 million shares, which is equivalent to 5.1% of common stock outstanding as of September 30, 2017. Weighted average diluted shares decreased by 3.3 million compared with the third quarter of 2017, primarily due to the aforementioned share repurchases, partially offset by the dilutive impact of an increased common share price on warrants that have been outstanding since 2008 (“TARP” warrants - NASDAQ: ZIONZ) and 2010 (NASDAQ: ZIONW). As of September 30, 2018, the Company had 1.9 million and 29.3 million warrants outstanding of ZIONZ (TARP) and ZIONW warrants, respectively. The ZIONZ warrants expire on November 14, 2018 and the ZIONW warrants expire on May 22, 2020.

Tangible book value per common share increased to $31.08 at September 30, 2018, compared with $30.93 at September 30, 2017. Basel III common equity tier 1 (“CET1”) capital was $6.3 billion at September 30, 2018, compared with $6.2 billion at September 30, 2017; the increase was primarily due to a $596 million increase in retained earnings, partially offset by share repurchases. The estimated Basel III CET1 capital ratio was 12.1% at September 30, 2018 compared with 12.2% at September 30, 2017. For information on non-GAAP financial measures, see pages 16-19.

On September 30, 2018, the Company completed the merger of Zions Bancorporation, its former bank holding company, with, and into, its subsidiary bank, formerly known as ZB, N.A. in order to further reduce organizational complexity. The restructuring eliminated the bank holding company structure and associated regulatory framework, and resulted in ZB, N.A. being renamed Zions Bancorporation, National Association and becoming the top-level entity within our corporate structure.

As a result of the Financial Stability Oversight Council’s action on September 12, 2018, the Company is no longer considered a systemically important financial institution under the Dodd-Frank Act. The Company expects to have greater flexibility in the active management of shareholders’ equity. The Company expects to continue to utilize stress testing as the primary mechanism to inform its decisions on the appropriate level of capital, based upon actual and hypothetically-stressed economic conditions. Therefore, the timing and amount of capital actions will be subject to various factors, including the company's financial performance and prevailing and anticipated economic conditions.

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 22, 2018). 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 5288295 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, N.A.

Zions Bancorporation, N.A. 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

This earnings release includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Statements in the earnings release that are based on other than historical information, 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 reflect, among other things, our current expectations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, industry results or regulatory outcomes to differ materially from those expressed or implied by such forward-looking statements.

Without limiting the foregoing, the words “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “should,” “would,” “targets,” “will” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about future financial and operating results, or the anticipated benefits of the recently completed merger described in the release. Actual results and outcomes may differ materially from those presented, either expressed or implied, in the release. Important risk factors that may cause such material differences include, but are not limited to, the actual amount and duration of declines in the price of oil and gas; Zions’ ability to meet operating leverage goals; the rate of change of interest sensitive assets and liabilities relative to changes in benchmark interest rates; the ability of the Company to achieve anticipated benefits from the recently completed merger; and legislative, regulatory and economic developments that may diminish or eliminate the anticipated benefits of the merger. These risks, as well as other factors, 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 (https://www.sec.gov/). In addition, you may obtain documents filed with the SEC by the Company free of charge by contacting: Investor Relations, Zions Bancorporation, N.A., One South Main Street, 11th Floor, Salt Lake City, Utah 84133, (801) 844-7637.

Except as required by law, Zions Bancorporation, N.A. 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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