ZIONS BANCORPORATION REPORTS EARNINGS OF $0.19 PER ZIONS BANCORPORATION REPORTS EARNINGS OF $0.19 PER DILUTED COMMON SHARE FOR FOURTH QUARTER 2012
SALT LAKE CITY, January 28, 2013 – Zions Bancorporation (NASDAQ: ZION) (“Zions” or “the Company”) today
reported fourth quarter net earnings applicable to common shareholders of $35.6 million or $0.19 per diluted common
share, compared to $62.3 million or $0.34 per diluted share for the third quarter of 2012. Net earnings were adversely
affected this quarter by a net amount of $73.6 million pretax, or $0.25 per diluted share, consisting of $83.8 million of
other-than-temporary impairment (“OTTI”) on collateralized debt obligation (“CDO”) securities, partially offset by $10.2
million of CDO securities gains.
Fourth Quarter 2012 Highlights
• Loans and leases, excluding FDIC-supported loans, increased $463 million to $37.1 billion at December 31,
2012. Average loans and leases, excluding FDIC-supported loans, increased only $100 million, as most of the
loan growth occurred near quarter-end.
• Net loan and lease charge-offs declined 51% and nonperforming lending-related assets declined 11% compared
to the third quarter. The continued improvement in credit quality resulted in a fourth quarter negative provision
for loan losses of $10 million.
• The OTTI on CDO securities was primarily attributable to significant changes in modeling assumptions related
to prepayment speeds and PDs on certain deferring bank holding company trust preferred securities.
• Tangible common equity per common share improved $0.71 to $20.95 from $20.24 in the third quarter.
“Credit quality and net interest income exceeded our expectations for the fourth quarter of 2012,” said Harris H.
Simmons, chairman and chief executive officer. Mr. Simmons continued, “We expect continued reduction in problem
loans in the near term, along with relatively stable net interest income, resulting from moderate loan growth offset by
some continued net interest margin pressure.” Mr. Simmons concluded, “Over the next several quarters, we expect to
execute several capital actions that will significantly reduce interest expense and dividends associated with legacy debt
and preferred stock, which should have a favorable effect on our return on equity.”
Reclassifications in Statement of Income
For the fourth quarter of 2012, approximately $9 million of credit card interchange fees were reclassified from interest
and fees on loans to other service charges, commissions and fees. In addition, $3 million of income on factored
receivables was reclassified from other service charges, commissions and fees to interest and fees on loans. These
reclassifications reduced net interest income by approximately $6 million and the net interest margin by 5 basis points for
the fourth quarter of 2012. At December 31, 2012, the reclassifications related to factored receivables also increased loan
and lease balances by approximately $96 million and the allowance for loan losses by $2 million, with a corresponding
reduction in other assets of $94 million. The changes were made primarily to conform with prevailing reporting practices
in the banking industry. Current and prior period amounts for all periods presented throughout this press release have
been adjusted where appropriate so that amounts are on a comparable basis. There was no change in net earnings for any
prior period presented.
Loans
Loans and leases, excluding FDIC-supported loans, increased $463 million on a net basis to $37.1 billion at
December 31, 2012, compared to $36.7 billion at September 30, 2012. The increases were predominantly in commercial
and industrial and 1-4 family residential loans and were widespread geographically. Decreases of $174 million in
commercial owner occupied, construction and land development, and term commercial real estate loans partially offset
increases in other loan categories. Most of this increase occurred during the month of December. Average loans and
leases, excluding FDIC-supported loans, increased $100 million to $36.7 billion during the fourth quarter of 2012,
compared to $36.6 billion during the third quarter of 2012.
Deposits
Average total deposits for the fourth quarter of 2012 increased $1.4 billion, or 3.3%, to $44.9 billion, compared to $43.5
billion for the third quarter of 2012. The increase resulted primarily from a higher level of average noninterest-bearing
demand deposits, primarily in nonpersonal accounts, for the fourth quarter of 2012, which were $17.9 billion compared to
$16.8 billion for the third quarter of 2012. The ratio of average loans to average deposits was 83% at December 31, 2012,
compared to 86% at September 30, 2012.
Debt and Shareholders’ Equity
The tangible common equity ratio was 7.09% at December 31, 2012, compared to 7.17% at September 30, 2012. The
decline was primarily due to a 5% increase in total tangible assets, driven primarily by a 24% increase in cash-related
balances that resulted from increased deposits late in the year. The estimated common equity tier 1 capital ratio was
9.78% at December 31, 2012, compared to 9.86% at September 30, 2012.
The $89 million after-tax improvement in accumulated other comprehensive income (loss) (“AOCI”) during the fourth
quarter related primarily to CDO securities and consisted of $52 million due to the reduction of unrealized losses in AOCI
from the OTTI discussed subsequently and $37 million due primarily to net fair value increases.
Net Interest Income
Net interest income (adjusted for the previously-discussed reclassifications) decreased 2% to $430 million for the fourth
quarter of 2012, compared to $438 million for the third quarter of 2012. Net interest income during the fourth quarter was
reduced by approximately $12 million for the discount amortization resulting from subordinated debt conversions and
increased by $13 million from additional accretion on acquired FDIC-supported loans. The net interest margin decreased
to 3.47% in the fourth quarter of 2012, compared to 3.58% in the third quarter of 2012. The decrease in the margin
continues to reflect both increases in cash equivalents and other low-yielding assets, as well as lower yields on resetting
or maturing older loans, which is expected to continue. New loan pricing has been relatively stable in recent months. The
cost of interest-bearing deposits continued to decline and was 0.25% in the fourth quarter compared to 0.28% in the third
quarter.
Noninterest Income
Noninterest income for the fourth quarter of 2012 was $54 million, compared to $125 million for the third quarter of
2012. The decrease was primarily due to the increased OTTI, partially offset by increased gains on CDO securities, as
discussed subsequently. Excluding the incremental pretax effect of these items compared to the third quarter, noninterest
income was approximately $128 million in the fourth quarter.
CDO Investment Securities
During the fourth quarter of 2012, the Company recognized credit-related OTTI on CDOs of $83.8 million or $0.28 per
diluted share, compared to $2.7 million or $0.01 per diluted share during the third quarter of 2012. The significant
increase in OTTI this quarter compared to recent quarters resulted from (1) increasing our assumed probabilities of
default (“PDs”) for bank holding company issuers of trust preferred securities that are still deferring, and (2) increasing
our near-term prepayment assumptions for some banks. This quarter, the Company observed greater regulatory and
restructuring risk than previously modeled in those deferrals that have not yet chosen to or been allowed to resume
payments on trust preferred securities. Approximately 61% of the OTTI was attributable solely to the increased PDs. Also
this quarter the Company observed a significant increase in prepayments from small bank holding companies, which led
us to increase the assumed prepayment rates on issuers with less than $15 billion in assets. The Company also recognized
$10.2 million or $0.03 per diluted share in gains during the quarter, compared to $3.0 million or $0.01 per diluted share in
the third quarter, from cash principal payments on CDOs previously written down.
The following table stratifies the CDOs into performing tranches without credit impairment and nonperforming tranches
at December 31, 2012:
https://www.snl.com/Cache/1001172108.PDF?D=&O=PDF&IID=100501&Y=&T=&FID=1001172108
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