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)
Oct 24 2016 at 03:00 PM
SALT LAKE CITY, October 24, 2016 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the third quarter of 2016 of $117 million, or $0.57 per diluted common share, compared to net earnings applicable to common shareholders of $91 million, or $0.44 per diluted common share, for the second quarter of 2016 and $84 million, or $0.41 per diluted common share, for the third quarter of 2015.
Harris H. Simmons, Chairman and CEO, commented, "We are pleased with several elements of the third quarter, including the growth in consumer loans and fee income, two of our major growth initiatives. However, we experienced soft loan demand, similar to others in the industry, on the commercial side of the business." Mr. Simmons continued "We are pleased with the continued credit quality performance of the non-oil and gas loan portfolios, which experienced net recoveries in the quarter and year-to-date; the oil and gas loan portfolio remains under stress, though the credit performance has been largely consistent with our expectations." Mr. Simmons concluded, "We remain committed to achieving our operational and financial targets as outlined to investors in June 2015."
Net interest income increased to $469 million in the third quarter of 2016 from $465 million in the second quarter of 2016. The increase in net interest income was due to a $3 million increase in interest and fees on loans and a $2 million increase in interest from investment securities. The net interest margin decreased to 3.36% in the third quarter of 2016, compared to 3.39% in the second quarter of 2016. The Company continues to change its mix of interest-earning assets as average money market investments declined in the third quarter of 2016 by $906 million, much of which was deployed into term investment securities. Average securities increased in the third quarter of 2016 by $884 million and average loans and leases held for investment increased by $379 million.
Total noninterest income for the third quarter of 2016 was $145 million, compared to $126 million for the second quarter of 2016. The improvement in total noninterest income during the quarter was primarily due to customerrelated fees and securities gains. Customer-related fees increased by 7% in the third quarter of 2016 compared to the prior quarter and increased by 11% compared to the same prior year period. The increase in customer-related fees was generally across all fee types. Additionally, securities gains increased $6 million primarily due to an increase of $8 million in the market value of one of the Company's SBIC investments. Dividends and other investment income increased by $3 million due to increases in the market value of the Company's SBIC investments.
Noninterest expense for the third quarter of 2016 was $403 million, compared to $382 million for the second quarter of 2016, and $391 million for the third quarter of 2015. The increase of $21 million in total noninterest expense from the second quarter of 2016 was primarily due to a legal accrual, true-ups related to the alignment of a single back-office operating environment, and other employee benefits-related items. Despite the increases in noninterest expense during the third quarter, the Company remains committed to accomplishing its goals of maintaining noninterest expense at less than $1.58 billion and achieving an efficiency ratio of less than 66% in 2016. 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, remained flat at $42.5 billion at September 30, 2016. Average loans and leases held for investment of $42.5 billion during the third quarter of 2016 increased from $42.1 billion during the second quarter of 2016. The oil and gas-related portfolio declined $256 million from the prior quarter due to payoffs, paydowns, charge-offs and active management of the portfolio. This decline was offset by $211 million of growth in consumer loans, predominately in 1-4 family residential loans, and also by $132 million of growth in commercial real estate loans. Excluding the strategic reduction in oil and gas-related loans, net loans and leases increased $294 million during the third quarter of 2016. Unfunded lending commitments were $19.1 billion at September 30, 2016, compared to $18.5 billion at June 30, 2016.
During the third quarter of 2016, oil and gas-related loans decreased $256 million, or 10%, and total oil and gas credit exposure decreased by $295 million, or 7%. Oil and gas-related loans now represent 5% of the total loan portfolio. Oil and gas services (oilfield services and oil and gas service manufacturing) decreased $133 million, or 15%, from the second quarter of 2016, and $304 million, or 28%, from the third quarter of 2015. Unfunded lending commitments decreased by $39 million, primarily in the exploration and production, oilfield services, and oil and gas service manufacturing portfolios. Consistent with management's expectations, the majority of loan downgrades in the third 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 $41 million in the third quarter of 2016 and were predominantly in the oilfield services portfolio, compared to $37 million in the second quarter of 2016. During the third quarter of 2016, the Company entered into contracts to sell $29 million of oil and gas-related loans and subsequently classified them as held for sale. The Company recognized $5 million of chargeoffs on these loans. Approximately 87% of oil and gas-related nonaccruing loans were current as to principal and interest payments as of September 30, 2016, similar to the 89% reported as of June 30, 2016. The allowance for credit losses related to oil and gas-related loans decreased during the quarter but continued to exceed 8% of oil and gas-related loan balances for the third quarter of 2016. The results of the recent shared national credit exam are reflected in the Company's financial statements.
Asset quality for the total portfolio remained strong and was generally stable when compared to the prior quarter. Nonperforming assets were $587 million at September 30, 2016, compared to $556 million at June 30, 2016. The ratio of nonperforming assets to loans and leases and other real estate owned increased to 1.37% at September 30, 2016, compared to 1.30% at June 30, 2016. Excluding oil and gas-related loans, the ratio of nonperforming assets to loans and leases and other real estate owned was 0.60% at September 30, 2016 compared to 0.67% at June 30, 2016. Classified loans for the total portfolio were $1.6 billion at September 30, 2016 and June 30, 2016.
The allowance for credit losses decreased to $659 million at September 30, 2016 from $673 million at June 30, 2016, which was 1.55% and 1.58% of loans and leases, respectively. Excluding oil and gas-related loans, the allowance for credit losses was 1.13% of loans and leases at September 30, 2016, compared to 1.15% at June 30, 2016.
Total net charge-offs were $30 million in the third quarter of 2016, or an annualized 0.28% of average loans, compared to $38 million, or an annualized 0.36% of average loans, in the second quarter of 2016. However, excluding the oil and gas-related loans, the Company had net recoveries of $11 million, or an annualized (0.11)% of average loans, in the third quarter of 2016, compared to $1 million of net charge-offs, or an annualized 0.01%, in the second quarter of 2016. The Company provided $16 million for credit losses during the third quarter of 2016, compared to $30 million during the second quarter of 2016. The decrease of $14 million in the provision for credit losses was primarily due to an $11 million decline in the allowance for loan losses reflecting continued strong credit quality for the total portfolio in addition to a change in the portfolio mix, as oil and gas-related exposures were reduced, and increasing high-quality residential real estate and commercial real estate term exposures. The reserve for unfunded lending commitments declined by $3 million as a result of improved credit quality assessments related to these obligations.
Total deposits increased to $50.8 billion at September 30, 2016, compared to $50.3 billion at June 30, 2016. Average total deposits increased $724 million to $50.7 billion for the third quarter of 2016, compared to $50.0 billion for the second quarter of 2016. Average noninterest bearing deposits increased to $22.5 billion for the third quarter of 2016, compared to $21.8 billion for the second quarter of 2016, and were 44% of average total deposits.
During the third quarter of 2016, the Company commenced its stock buyback program and repurchased $45 million of its stock during the quarter at an average price of $30.64 per share, leaving $135 million of buyback capacity remaining in the 2016 capital plan (which spans the timeframe of July 2016 to June 2017). Preferred dividends are expected to be $12.4 million for the fourth quarter of 2016 and the second quarter of 2017, and are expected to be $10.4 million for the first quarter of 2017. Additionally, the Company reduced its long-term debt by $128 million during the third quarter of 2016 by exercising its call options for junior subordinated debentures related to trust preferred securities.
Accumulated other comprehensive income (loss) decreased to $10 million from $24 million, primarily as a result of a decline 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 $29.16 at September 30, 2016, compared to $28.72 at June 30, 2016. The estimated Basel III common equity tier 1 ("CET1") capital ratio was 12.0% at September 30, 2016 and at June 30, 2016; Basel III capital ratios are based on the applicable phase-in periods, however, the fully phased-in ratio was not substantially different.
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 24, 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 87814485, 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.