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About > Newsroom > News Release Archives >

Zions Bancorporation Reports First Quarter 2016 Financial Results

Zions Bancorporation Reports First Quarter 2016 Financial Results

Apr 25 2016 at 05:00 PM

SALT LAKE CITY, April 25, 2016 – Zions Bancorporation (“Zions” or “the Company”) today reported net earnings applicable to common shareholders for the first quarter of 2016 of $79 million, or $0.38 per diluted common share, compared to net earnings applicable to common shareholders of $88 million, or $0.43 per diluted common share, for the fourth quarter of 2015 and $75 million, or $0.37 per diluted common share, for the first quarter of 2015.

First Quarter 2016 Highlights

Net Interest Income and Net Interest Margin

  • Net interest income was $453 million for 1Q16, up 1% from 4Q15 and up 9% from 1Q15
  • NIM up 12 bps to 3.35% from 3.23% in 4Q15 and up 13 bps from 3.22% in 1Q15

Operating Performance

  • Adjusted pre-provision net revenue ("PPNR") was $182 million for 1Q16, up 5% from 4Q15 and up 21% from 1Q15
  • Efficiency ratio of 68.5% for 1Q16, an improvement of 106 bps from 4Q15
  • Adjusted noninterest expense of $396 million in 1Q16 compared to $398 million in 4Q15
  • Customer-related fees in 1Q16 increased 7% from 1Q15

Loans and Credit Quality

  • Net loans and leases increased $769 million, or 1.9%, from 4Q15 (7.6% annualized)
  • Provision for loan losses was $42 million compared to $23 million in 4Q15
  • Non-performing assets were 1.33% of loans and leases, up from 0.87% in 4Q15
  • Net charge-offs were $36 million in 1Q16 compared to $13 million in 4Q15

Oil and Gas-Related Exposure

  • Net charge-offs for oil and gas loans were $36 million in 1Q16 compared to $24 million in 4Q15
  • Oil and gas portfolio allowance increased to 8.1% of the portfolio
  • Criticized oil and gas-related loans equaled 38% of the oil and gas-related loans, up from 30% in the prior quarter

CEO Commentary

Harris H. Simmons, Chairman and CEO, commented, "We continue to generate strong growth in pre-provision net revenue, reflecting operating leverage improvement resulting from solid loan growth, a more profitable earning assets mix and controlled core operating expenses. We are on track to achieve the goals we established in mid-2015, leading to an efficiency ratio of 66% or better in 2016 and in the low 60% range in 2017 while accelerating revenue growth. Although energy-related credit losses and related provisions largely offset these gains, recent improvements in energy prices are encouraging, and credit performance in the rest of the portfolio has been stellar. We’re pleased with the progress made during the quarter in building a stronger foundation for future growth and capital distributions."

Net Interest Income

Net interest income increased to $453 million in the first quarter of 2016 from $449 million in the fourth quarter of 2015. The net interest margin increased to 3.35% in the first quarter of 2016, compared to 3.23% in the fourth quarter of 2015. In the prior quarter, the Company realized interest income of $13 million from loan recoveries and FDIC-supported loans that was not repeated in the first quarter. However, higher benchmark interest rates assisted in maintaining and increasing net interest income despite the aforementioned $13 million of elevated interest income in the prior quarter. The increase in net interest income was primarily driven by a change in the mix of interestearning assets; average money market investments declined by $2.7 billion, much of which was deployed into loans and term investment securities. Additionally, net interest income benefited from high cost long-term debt that matured in the fourth quarter of 2015. Interest and fees on loans decreased in the first quarter of 2016 primarily as a result of the previously mentioned interest recoveries on commercial loans that occurred in the fourth quarter of 2015 and an increase of $192 million in nonaccrual loans in the first quarter of 2016.

Noninterest Income

In the first quarter of 2016, to be consistent with industry practice, the Company reclassified its bankcard rewards expense from “Other” noninterest expense to “Other service charges, commissions and fees” in noninterest income in order to offset this expense against the associated revenue. Prior period amounts have been reclassified to reflect this change.

Customer-related fees in the first quarter of 2016 were stable compared to the prior quarter and increased 7% from the prior year period. Most of the year-over-year increase was due to an increase in credit card and interchange fees and loan fees. Total noninterest income for the first quarter of 2016 was $117 million, compared to $119 million for the fourth quarter of 2015.

Noninterest Expense

Noninterest expense for the first quarter of 2016 was $396 million, compared to $397 million for the fourth quarter of 2015, and $393 million for the first quarter of 2015. The decrease in total noninterest expense from the fourth quarter of 2015 was primarily due to a decrease of $17 million in other noninterest expense, in addition to reductions in professional and legal services, FDIC premiums, and credit-related expense. The decrease in other noninterest expense was mostly attributable to elevated fourth quarter payments related to the loss-sharing agreement with the FDIC and an elevated fourth quarter accrual for legal-related matters. The decrease in these expenses in the first quarter of 2016 was partially offset by an increase of $22 million in salaries and employee benefits. The primary reasons for the increase in salaries and employee benefits were a seasonal increase of $6 million in the accrual related to annual restricted stock awards, which historically occurred in the second quarter, a seasonal increase of $7 million in payroll taxes, and a $9 million difference in incentive compensation accrual due to performance related reductions in the fourth quarter of 2015.

The Company continued to make meaningful progress with its corporate restructuring and cost initiatives during the quarter. Adjusted noninterest expense for the first quarter of 2016 was $396 million, compared to $398 million for the fourth quarter of 2015 and $386 million for the first quarter of 2015. For information on non-GAAP financial measures see pages 15-17.

Loans and Leases

Loans and leases, net of unearned income and fees increased $769 million, or 1.9% (7.6% on an annualized basis based on first quarter growth) to $41.4 billion at March 31, 2016 from $40.6 billion at December 31, 2015. Average loans and leases held for investment of $41.0 billion during the first quarter of 2016 increased from $40.3 billion during the fourth quarter of 2015. The increase in loans was widespread across products and geography with particular strength in commercial and industrial and commercial real estate term loans. Unfunded lending commitments were $18.2 billion at March 31, 2016, compared to $18.1 billion at December 31, 2015. The reserve for unfunded lending commitments declined by $6 million as a result of improved credit quality assessments related to these obligations.

Oil and Gas-Related Exposure

During the first quarter of 2016, oil and gas-related loans increased $21 million, or 1%, and total oil and gas credit exposure decreased by $109 million, or 2%. Further attrition of total oil and gas-related loan balances and commitments during the next several quarters is expected, but at a slower pace than recent quarters. Unfunded lending commitments decreased by $130 million, primarily in the oilfield services and exploration and production portfolios.

Consistent with management’s expectations, the majority of loan downgrades in the first quarter of 2016 reflected deterioration in the financial condition of companies in the oilfield services and the exploration and production portfolios. Oil and gas-related loan net charge-offs were $36 million in the first quarter of 2016 and were predominantly in the oilfield services portfolio, compared to $24 million in the fourth quarter of 2015. Nonaccruing loans increased by $220 million in the first quarter of 2016, primarily in the exploration and production and oilfield services portfolios. Approximately 91% of oil and gas-related nonaccruing loans were current as to principal and interest payments as of March 31, 2016, up from 71% as of December 31, 2015. The Company has a substantial allowance of 8.1% for credit losses against the oil and gas-related loan portfolio.

Asset Quality

Outside of the oil and gas-related portfolio, credit quality improved during the quarter. As a result of the credit quality deterioration in the oil and gas-related portfolio, nonperforming assets increased 55% to $552 million at March 31, 2016 from $357 million at December 31, 2015 and classified loans increased 12% to $1.5 billion at March 31, 2016 from $1.4 billion at December 31, 2015. The ratio of nonperforming assets to loans and leases and other real estate owned increased to 1.33% at March 31, 2016, compared to 0.87% at December 31, 2015. The allowance for credit losses was $681 million at March 31, 2016 and December 31, 2015, which was 1.64% and 1.68% of loans and leases, respectively.

Total net charge-offs were $36 million in the first quarter of 2016, or an annualized 0.35% of average loans, compared to $13 million, or an annualized 0.13% of average loans, in the fourth quarter of 2015. The Company provided $42.1 million for loan losses during the first quarter of 2016, compared to $22.7 million during the fourth quarter of 2015. The increase in the provision for loan losses was due to continued weakness in the oil and gas sector.

Deposits

Total deposits decreased to $49.9 billion at March 31, 2016, compared to $50.4 billion at December 31, 2015. Average total deposits decreased $438 million to $49.6 billion for the first quarter of 2016, compared to $50.0 billion for the fourth quarter of 2015. Average noninterest bearing deposits decreased $473 million to $21.9 billion for the first quarter of 2016, compared to $22.4 billion for the fourth quarter of 2015, and were 44% of average total deposits.

Shareholders’ Equity

The Company’s preferred dividends decreased by $2.6 million in the first quarter of 2016 as a result of the tender offer the Company completed in the fourth quarter of 2015 to purchase $176 million of its Series I preferred stock for an aggregate cash payment of $180 million. As reported separately on April 25, 2016, the Company has launched a tender offer for up to $120 million par amount of certain outstanding shares of preferred stock.

Accumulated other comprehensive income (loss) improved to $(12) million from $(55) million primarily as a result of improvement in the fair value of the Company’s available-for-sale securities portfolio due largely to changes in the interest rate environment.

Tangible book value per common share increased to $28.20 at March 31, 2016, compared to $27.63 at December 31, 2015.

The estimated Basel III common equity tier 1 (“CET1”) capital ratio was 12.14% at March 31, 2016, compared to 12.22% at December 31, 2015. The fully phased-in ratio was not substantially different.

Supplemental Presentation and Conference Call

Zions has posted a supplemental presentation to its website, which will be used to discuss these first quarter results at 5:30 p.m. ET this afternoon (April 25, 2016). 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 72743364, 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 of approximately $60 billion. Zions operates under local management teams and unique brands 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 public finance advisory services, and is a consistent top recipient of numerous 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 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, our ability to meet our efficiency and noninterest expense goals, 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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