Rates and products offered may differ from state to state. To see the rate and offering available to you, please select the state where you bank. (Your privacy is important to us—see our Privacy Notice)
Jul 26 2016 at 05:00 PM
SALT LAKE CITY, July 26, 2016 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the second quarter of 2016 of $91 million, or $0.44 per diluted common share, compared to net earnings applicable to common shareholders of $79 million, or $0.38 per diluted common share, for the first quarter of 2016 and $(1.1) million, or $(0.01) per diluted common share, for the second quarter of 2015.
Harris H. Simmons, Chairman and CEO, commented, "We are pleased with the Company's positive momentum, as evidenced most notably by the continued strong improvement in pre-provision net revenue which increased 32% in the second quarter from the same prior year period. As anticipated, the strong performance is coming from loan growth, which came from diverse geographies and product types, and well-controlled expenses. We are focused on increasing both the return on and the return of capital. Accordingly, we announced a one-third increase in our dividend, and the commencement at the earliest opportunity of a share repurchase program expected to total $180 million over the next four quarters."
Net interest income increased to $465 million in the second quarter of 2016 from $453 million in the first quarter of 2016. The net interest margin increased to 3.39% in the second quarter of 2016, compared to 3.35% in the first quarter of 2016. The Company continues to change its mix of interest-earning assets as average money market investments declined in the second quarter of 2016 by $1.1 billion, much of which was deployed into loans and term investment securities. Average loans and leases held for investment increased in the second quarter of 2016 by $1.1 billion and average securities increased $876 million. The increase in net interest income was due to a $13 million increase in interest and fees on loans resulting from solid loan growth across all segments in recent quarters. Although the average amount of investment securities increased, the interest income on securities was stable with the prior quarter primarily due to elevated prepayments and the corresponding reduction in portfolio yield.
Total noninterest income for the second quarter of 2016 was $126 million, compared to $117 million for the first quarter of 2016. The improvement in total noninterest income during the quarter was primarily due to customerrelated fees, which increased in the second quarter of 2016 by 5% compared to the prior quarter and prior year period. Additionally, equity securities gains increased primarily due to a $2 million increase in the market value of the Company's SBIC investments.
The Company continued to make meaningful progress with its corporate restructuring and cost initiatives during the quarter. Noninterest expense for the second quarter of 2016 was $382 million, compared to $396 million for the first quarter of 2016, and $399 million for the second quarter of 2015. The decrease in total noninterest expense from the first quarter of 2016 was primarily due to a decrease of $17 million in salaries and employee benefits, which was predominantly a result of $13 million of seasonal increases that occurred during the first quarter related to the accrual for annual restricted stock awards and payroll taxes, in addition to a $3 million decline in severance. For more information on adjusted noninterest expense measures used to determine the Company's efficiency ratio, see pages 15-17.
Loans and leases, net of unearned income and fees, increased $1.1 billion, or 2.6% (10.5% on an annualized basis based on second quarter growth) to $42.5 billion at June 30, 2016 from $41.4 billion at March 31, 2016. Average loans and leases held for investment of $42.1 billion during the second quarter of 2016 increased from $41.0 billion during the first quarter of 2016. The increase in loans was widespread across products and geography, with particular strength in commercial real estate term, 1-4 family residential (which includes the purchase of $104 million of loans), and commercial and industrial loans. Unfunded lending commitments were $18.5 billion at June 30, 2016, compared to $18.2 billion at March 31, 2016.
During the second quarter of 2016, oil and gas-related loans decreased $73 million, or 3%, and total oil and gas credit exposure decreased by $271 million, or 6%. Oil and gas services (oilfield services and oil and gas service manufacturing) decreased $58 million, or 6%, from the first quarter of 2016, and $229 million, or 20%, from the second quarter of 2015. Unfunded lending commitments decreased by $198 million, primarily in the oilfield services and oil and gas service manufacturing portfolios. Consistent with management's expectations, the majority of loan downgrades in the second 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 $37 million in the second quarter of 2016 and were predominantly in the oilfield services portfolio, compared to $36 million in the first quarter of 2016. Nonaccrual and criticized oil and gas-related loan ratios remained relatively flat from the first quarter of 2016. Approximately 89% of oil and gas-related nonaccruing loans were current as to principal and interest payments as of June 30, 2016, similar to the 91% reported as of March 31, 2016. The allowance for credit losses related to oil and gas-related loans remained more than 8% for the second quarter of 2016.
Asset quality for the total portfolio remained strong and was generally stable when compared to the prior quarter. Nonperforming assets were $556 million at June 30, 2016, compared to $552 million at March 31, 2016, and classified loans increased 5% to $1.6 billion at June 30, 2016, from $1.5 billion at March 31, 2016. The ratio of nonperforming assets to loans and leases and other real estate owned decreased to 1.30% at June 30, 2016, compared to 1.33% at March 31, 2016. The allowance for credit losses decreased to $673 million at June 30, 2016 from $681 million at March 31, 2016, which was 1.58% and 1.64% of loans and leases, respectively.
Total net charge-offs were $38 million in the second quarter of 2016, or an annualized 0.36% of average loans, compared to $36 million, or an annualized 0.35% of average loans, in the first quarter of 2016. Only $1 million of net charge-offs were attributed to loans outside of the oil and gas portfolio. Additionally, classified loans outside of the oil and gas portfolio decreased by 3% in the second quarter of 2016, compared to the first quarter. The Company provided $30 million for credit losses during the second quarter of 2016, compared to $36 million during the first quarter of 2016. The decrease of $4 million in the allowance for loan losses reflected continued strong credit quality. The reserve for unfunded lending commitments declined by $4 million as a result of improved credit quality assessments related to these obligations.
Total deposits increased to $50.3 billion at June 30, 2016, compared to $49.9 billion at March 31, 2016. Average total deposits increased $396 million to $50.0 billion for the second quarter of 2016, compared to $49.6 billion for the first quarter of 2016. Average noninterest bearing deposits were generally stable at $21.8 billion for the second quarter of 2016, compared to $21.9 billion for the first quarter of 2016, and were 44% of average total deposits.
The Company's preferred stock decreased by $119 million in the second quarter of 2016 as a result of the tender offer the Company completed during the quarter to purchase $27 million of its Series I preferred stock, $59 million of its Series J preferred stock, and $33 million of its Series G preferred stock for an aggregate cash payment of $127 million. The total one-time reduction to net earnings applicable to common shareholders associated with the preferred stock redemption was $10 million. Preferred dividends are expected to be $10.4 million for the third quarter of 2016 and first quarter of 2017 and are expected to be $12.4 million for the fourth quarter of 2016 and the second quarter of 2017.
Accumulated other comprehensive income (loss) increased to $24 million from $(12) 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 $28.72 at June 30, 2016, compared to $28.20 at March 31, 2016. The estimated Basel III common equity tier 1 ("CET1") capital ratio was 11.94% at June 30, 2016, compared to 12.13% at March 31, 2016; Basel III capital ratios are based on the applicable phase-in periods, however, the fully phased-in ratio was not substantially different.
On June 29, the Board of Governors of the Federal Reserve System notified Zions that the Federal Reserve did not object to Zions' board-approved 2016 capital plan. Zions' capital plan for the period spanning July 1, 2016 through June 30, 2017 include the following capital actions:
On July 22, 2016, the Company announced that its board of directors declared a regular quarterly dividend of $0.08 per common share and authorized the commencement of its stock buyback program, including $45 million expected in the third quarter of 2016.
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 26, 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 43431070, 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 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.
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.