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Apr 23 2018 at 02:00 PM
SALT LAKE CITY, April 23, 2018 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the first quarter of 2018 of $231 million, or $1.09 per diluted common share, compared with 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 $114 million, or $0.54 per diluted common share, for the fourth quarter of 2017.
Harris H. Simmons, Chairman and CEO, commented, “Our first quarter results reflect continued strong positive operating leverage, with the result that adjusted pre-provision net revenue increased 19% over the first quarter of last year, even after excluding the positive impact of unusually large interest recoveries. Credit quality is also strong, as nonperforming assets have declined by a third over the past year, while net loans charged-off during the quarter were a modest 0.05%, annualized, of total loans and leases. Finally, tax reform reduced the effective tax rate to 23% from what has more typically been a rate in the mid-to-low 30% range. Business confidence and economic conditions across the western U.S. are strong, and we are optimistic about the year ahead.”
Net interest income increased to $542 million in the first quarter of 2018 from $489 million. The $53 million, or 11%, increase in net interest income was primarily due to a $64 million increase in interest and fees on loans resulting from loan growth in commercial and consumer loans and increases in short-term interest rates, and an $8 million increase in interest on securities, resulting from a $907 million, or 6%, increase in the size of the average investment securities portfolio. Interest income was positively impacted in the first quarter by interest income recoveries, most notably four commercial loan interest income recoveries of $11 million. Interest expense increased $21 million, primarily due to a $14 million increase in interest on short and long-term borrowings and a $7 million increase in interest on deposits. The interest on short and long-term borrowings was impacted by both larger balances and higher rates.
The net interest margin increased to 3.56% in the first quarter of 2018 compared with 3.45% in the fourth quarter of 2017 and 3.38% in the same prior year period. The expansion of the margin was primarily due to a material expansion of the yield on earnings assets, which increased 31 basis points compared with the first quarter of 2017 and 18 basis compared with the fourth quarter of 2017. Compared with the fourth quarter of 2017, the taxable-equivalent yield on assets increased to 3.87% from 3.69% due to a 21 basis point increase in the average loan yield and an 11 basis point increase in the average securities yield. The decrease in the corporate tax rate from 35% to 21% decreased the taxable equivalent yield on $3.1 billion of tax-exempt assets, which had a 3 basis point negative impact on the average yield of interest-earning assets. The previously-mentioned interest income recoveries positively impacted the loan yield by approximately 9 basis points and the net interest margin by approximately 7 basis points in the current quarter.
The rate paid on total deposits and interest-bearing liabilities increased 15 basis points from 0.18% for the first quarter of 2017 to 0.33% for the first quarter of 2018, primarily due to an increase in both the amount of interest-bearing liabilities and the rate paid on wholesale funding and deposits. The total cost of deposits for the first quarter of 2018 was 0.15%, compared with 0.13% and 0.10% for the fourth and first quarters of 2017, respectively.
Total noninterest income for the first quarter of 2018 increased by $6 million, or 5%, to $138 million from $132 million, primarily due to an $8 million, or 7%, increase in customer-related fees, mainly related to customer interest rate swap management fees, loan syndication fees, wealth management and trust income, and municipal fees. Other noninterest income increased $4 million, primarily due to favorable credit valuations on client-related derivative instruments and net gains on sales of assets. These increases were partially offset by a $5 million decrease in securities gains as a result of increases in the market values of the Company’s Small Business Investment Company (“SBIC”) investments in the prior year period that did not recur in similar magnitudes in the first quarter of 2018.
Noninterest expense for the first quarter of 2018 was $412 million, compared with $414 million for the first quarter of 2017. Salaries and employee benefits increased $8 million primarily due to a $5 million increase in salaries and bonuses. As a result of the recent tax reform, the Company awarded salary increases to employees earning less than $50,000 per year, and committed to pay $1,000 bonuses in late 2018 to employees earning up to $100,000 and employed at the end of 2017. The increase in salary and employee benefits was also impacted by a $4 million increase in employee medical expenses.
Noninterest expense was reduced by slight decreases in occupancy, professional and legal services, and other noninterest expenses. Other noninterest expense during the fourth quarter of 2017 included a $12 million charitable contribution, which was attributable to the passing of the Tax Cut and Jobs Act (“the Act”).
Adjusted noninterest expense for the first quarter of 2018 increased $8 million, or 2%, to $419 million, compared with $411 million for the same prior year period. The main variance between noninterest expense and adjusted noninterest expense for the first quarter of 2018 is the provision for unfunded lending commitments, which was $(7) million, due primarily to continued credit quality improvement. The aforementioned 2% year-over-year increase is in line with our publicly-stated expectations that noninterest expense is likely to experience an increase in the low single-digit percentage range relative to the prior year.
Our efficiency ratio improved to 61.3% in the first quarter of 2018, compared with 61.6% in the fourth quarter of017 and 65.9% in the first quarter of 2017, continuing our trend and consistent with our goal of increasing revenue while controlling costs. For information on non-GAAP financial measures, see pages 16-18.
Our income tax rate was 22.7% for the first quarter of 2018, compared with 52.5% for the fourth quarter of 2017 and 24.5% for the first quarter of 2017. The income tax rate for the first quarter of 2018 was positively impacted by the decrease in the corporate federal income tax rate to 21% from 35%, effective January 1, 2018, in addition to a $4 million benefit from the 2017 change in accounting for share-based compensation. The impact of the Act on the net deferred tax asset resulted in a non-cash charge of $47 million through income tax expense during the fourth quarter of 2017. The relatively low first quarter of 2017 tax rate was primarily driven by a one-time $14 million benefit to tax expense related to state tax adjustments, and a $4 million benefit from the implementation of the accounting for sharebased compensation.
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 improvements in the oil and gas-related portfolio and decreases in overall classified and nonperforming assets. Classified loans and nonperforming assets for the oil and gas-related portfolio decreased $357 million and $206 million, respectively, from the first quarter of 2017.
The Company recorded a $(47) million provision for credit losses during the first quarter of 2018, compared with $(12) million during the fourth quarter of 2017, and $18 million for the first quarter of 2017. The $(47) million provision is primarily the result of improving credit quality in the oil and gas-related portfolio and an additional reduction of the reserve established for Hurricane Harvey in the third quarter of 2017. The allowance for loan losses was $473 million at March 31, 2018, compared with $544 million at March 31, 2017, or 1.05% and 1.27% of loans and leases, respectively.
Loans and leases, net of unearned income and fees, increased $2.3 billion, or 5%, to $45.1 billion at March 31, 2018 from $42.7 billion at March 31, 2017, predominantly in commercial and industrial loans, which increased 6%, and 1-4 family residential loans, which increased 9%. Commercial real estate loans declined slightly from the prior year, primarily due to payoffs and moderate originations due to active management of credit risk concentrations over the past year. Unfunded lending commitments increased to $21.0 billion at March 31, 2018, compared with $19.4 billion at March 31, 2017.
Total deposits decreased by $0.5 billion, or 1%, from $53.5 billion at March 31, 2017. Average total deposits decreased slightly to $52.0 billion for the first quarter of 2018 compared with $52.2 billion for the first quarter of 2017. Average noninterest bearing deposits decreased slightly to $23.4 billion for the first quarter of 2018, compared with $23.5 billion for the first quarter of 2017, and were 45% of average total deposits for both periods.
During the first quarter of 2018, the Company increased its common stock dividend to $0.20 cents per share from $0.16 cents per share in the fourth quarter of 2017. Common stock repurchases during the current quarter totaled $115 million, or 2.2 million shares, which is equivalent to 1.1% of common stock outstanding as of December 31, 2017. During the last four quarters the Company has repurchased $390 million, or 8.1 million shares, which is equivalent to 4.0% of common stock outstanding as of March 31, 2017. The Company has $120 million of buyback capacity remaining in its 2017 capital plan, which spans the timeframe of July 2017 to June 2018. Weighted average diluted shares decreased by 0.2 million compared with the first quarter of 2017, as repurchased shares more than offset the increased dilutive impact of warrants that have been outstanding since 2008 (“TARP” warrants - NASDAQ: ZIONZ) and 2010 (NASDAQ: ZIONW) and employee equity grants. During the first quarter of 2018, 3.2 million warrants were exercised. As of March 31, 2018, the Company had 2.6 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.
Preferred stock decreased by $144 million from March 31, 2017 to March 31, 2018 as a result of the Company redeeming all outstanding shares of its 7.9% Series F Non-Cumulative Perpetual Preferred Stock during the second quarter of 2017. Preferred dividends are expected to be $34 million for all of 2018.
Tangible book value per common share increased to $30.76 at March 31, 2018, compared with $29.61. Basel III common equity tier 1 (“CET1”) capital was $6.3 billion at March 31, 2018, compared with $6.1 billion at March 31, 2017; the increase was primarily due to an $564 million increase in retained earnings partially offset by the previously mentioned share repurchases. The estimated Basel III CET1 capital ratio was 12.2% at both March 31, 2018 and at March 31, 2017. For information on non-GAAP financial measures, see pages 16-18.
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 23, 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 7987919, 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.
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.
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 Zions Bancorporation’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, the potential timing or consummation of the proposed transaction described in the presentation and receipt of regulatory approvals or determinations, or the anticipated benefits thereof, including, without limitation, future financial and operating results. Actual results and outcomes may differ materially from those presented, either expressed or implied, in the presentation. 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 efficiency and noninterest expense goals; the rate of change of interest sensitive assets and liabilities relative to changes in benchmark interest rates; risks and uncertainties related to the ability to obtain shareholder and regulatory approvals or determinations, or the possibility that such approvals or determinations may be delayed; the imposition by regulators of conditions or requirements that are not favorable to Zions; the ability of Zions Bancorporation to achieve anticipated benefits from the consolidation and regulatory determinations; and legislative, regulatory and economic developments that may diminish or eliminate the anticipated benefits of the consolidation. These risks, as well as other factors, are discussed in Zions Bancorporation’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/), and other risks associated with the proposed transaction will be more fully discussed in the proxy statement that will be filed with the Securities and Exchange Commission in connection with the proposed transaction.
Except as required by law, Zions Bancorporation 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.