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Zions Bancorporation Releases Fourth Quarter Financial Results

January 31, 2014

Zions Bancorporation reported annual net earnings for 2013 of $294 million , or $1.58 per diluted common share, compared to $179 million , or $0.97 per diluted share, for 2012. In a release on January 27 , the Company noted that it reported a fourth quarter of 2013 net loss applicable to common shareholders of $(59.4) million or $(0.32) per diluted common share. The quarterly loss included impairment charges on collateralized debt obligation ("CDO") securities as a result of both the Company's decision to reduce risk within its CDO portfolio, and the impact of the final provisions of the Volcker Rule. The loss also included debt extinguishment costs that resulted from the Company's successful tender offer for some of its high cost subordinated debt. The total impairment charges and debt extinguishment costs were $222 million pretax or $0.74 per diluted share after-tax. For comparative purposes, net earnings for the third quarter of 2013 were $209.7 million or $1.12 per diluted share, and $35.6 million or $0.19 per diluted share for the fourth quarter of 2012. The third quarter amount included a $126 million or $0.68 per diluted share increase to net earnings for the redemption of all of the Company's Series C preferred stock. Fourth Quarter 2013 Highlights -Loans and leases held for investment, excluding FDIC -supported loans, increased $795 million compared to the prior quarter to $38.7 billion at December 31, 2013 . Average loans and leases, excluding FDIC -supported loans, increased $442 million . -Net interest income, excluding the effect of income from FDIC - supported loans, increased modestly compared to the previous quarter. -Credit quality showed continued improvement, with nonperforming lending-related assets and classified loans declining 16 percent and 13 percent, respectively, compared to the prior quarter. This continued improvement resulted in a fourth quarter negative provision for loan losses of $31 million . -The fair value of the CDO portfolio increased by $137 million during the quarter, even as sales and paydowns reduced the par balance of the portfolio. -Tangible book value per share improved by 3 percent compared to the prior quarter, increasing to $23.88 from $23.16 ; compared to the year-ago period, tangible book value per share improved by approximately 14 percent, a significant portion of which is attributable to the improvement in fair values of CDOs. "We are pleased with the improvement in loan growth, further strengthening of credit quality, and stabilization of the net interest margin during the quarter. Additionally, the steps we are taking to reduce risk in our securities portfolio, combined with continued strengthening of our capital ratios, positions us well to serve our customers and grow as the economy continues to improve," said Harris H. Simmons , chairman and chief executive officer. Dividend Announcement In addition to announcing its fourth quarter financial results, the Company also announced that its Board of Directors declared a regular quarterly dividend of $0.04 per common share. The dividend is payable February 27 , to shareholders of record on February 20 . The Board of Directors also declared the regular quarterly cash dividends on the Company's various perpetual preferred shares. The cash dividends on the Series A, F, G, H and J shares are payable on March 15 , to shareholders of record on March 1 . The cash dividends on the Series I shares are payable on June 15 , to shareholders of record on June 1 . Loans Loans and leases held for investment, excluding FDIC -supported loans, increased $795 million , or 2 percent, to $38.7 billion at December 31, 2013 from $37.9 billion at September 30, 2013 . The increases were predominantly in commercial and industrial loans primarily in Texas and California , and in 1-4 family residential loans primarily in Texas and Utah . Average loans and leases, excluding FDIC -supported loans, increased $442 million , or 1 percent, to $38.3 billion during the fourth quarter of 2013, compared to $37.8 billion during the third quarter of 2013. Unfunded lending commitments at December 31, 2013 increased by approximately $578 million during the fourth quarter of 2013 to a total of $17.2 billion at December 31, 2013 , compared to a $488 million increase during the third quarter of 2013. Deposits Average total deposits for the fourth quarter of 2013 increased $0.7 billion , or 1 percent, to $46.3 billion , compared to $45.6 billion for the third quarter of 2013. This increase was driven primarily by noninterest-bearing demand deposits, which increased to an average of $18.8 billion in the fourth quarter from $18.2 billion in the third quarter. The ratio of average loans to average deposits was 84 percent for the fourth quarter, unchanged from the third quarter. Debt and Shareholders' Equity The Company completed the following debt transactions during the quarter, excluding those in its medium-term note program:-On November 5, 2013 , the Company issued $162 million of qualifying Tier 2 fixed/floating rate subordinated notes due November 15, 2023 . Interest payments at a rate of 5.65 percent commence May 15 , and continue semiannually to the earliest possible redemption date of November 15, 2018 , after which they are payable quarterly at an annual floating rate equal to three-month LIBOR plus 4.19 percent. Net proceeds were approximately $160 million . -Effective December 6, 2013 , the Company completed the purchases of $250 million par amount of its 5.5 percent and 6.0 percent convertible and nonconvertible subordinated notes. The purchases were made as a result of separate cash tender offers totaling $250 million that were announced on November 6, 2013 . The total debt extinguishment cost recorded by the Company as a result of these purchases was approximately $80 million pretax or $0.27 per diluted share after-tax. The estimated common equity Tier 1 capital ratio was 10.15 percent at December 31, 2013 , compared to 10.47 percent at September 30, 2013 . CDO Investment Securities As explained in the Company's press release issued January 21 , the Company reached a decision to sell a portion of its CDO portfolio, which resulted in impairment charges of those securities to their fair values. This decision was the result of an analysis of the Company's CDO securities under the Volcker Rule (as subsequently modified by the Interim Final Rule) and other factors. The total OTTI adjustment reduced net earnings for the fourth quarter by approximately $142 million pretax or $0.47 per diluted share after- tax. Net Interest Income Excluding income from FDIC -supported loans, net interest income increased slightly compared to the prior quarter due to stronger loan growth, partially offset by reduced yield in the loan portfolio. Interest income from FDIC -supported loans also improved by approximately $13 million due to payoffs. In total, net interest income increased to $432 million for the fourth quarter of 2013, compared to $416 million for the third quarter of 2013. The net interest margin increased to 3.33 percent in the fourth quarter of 2013, compared to 3.22 percent in the third quarter of 2013 primarily as a result of the strong performance of FDIC -supported loans. Noninterest Income Noninterest income for the fourth quarter of 2013 was $(31) million , compared to $122 million for the third quarter of 2013. The significant majority of the linked quarter decline was attributable to the OTTI on CDO securities, as previously discussed. Loan sales and servicing income decreased primarily due to a lower volume of mortgage refinancing. Noninterest Expense Noninterest expense for the fourth quarter of 2013 was $495 million compared to $371 million for the third quarter of 2013. Increases this quarter compared to the previous quarter were due primarily to (1) the debt extinguishment cost of $80 million , (2) the change in the provision for unfunded lending commitments to $5.6 million this quarter from a negative provision of $19.9 million in the third quarter, due in part to a higher volume of loan commitments, (3) the increase in professional and legal services to $23.9 million in the fourth quarter from $16.5 million in the third quarter, and (4) an increase in the amortization of the FDIC indemnification asset to $19.9 million , compared to the prior quarter amount of $13.0 million , included in other noninterest expense. The increase in professional and legal services was primarily due to consulting expense related to the Company's Comprehensive Capital Analysis and Review ("CCAR") submission. Asset Quality Nonperforming lending-related assets declined 16 percent to $453 million at December 31, 2013 from $538 million at September 30, 2013 , primarily due to favorable resolutions. Nonaccrual loans declined 14 percent to $407 million at December 31, 2013 from $472 million at September 30, 2013 . The ratio of nonperforming lending- related assets to loans and leases and other real estate owned decreased to 1.15 percent at December 31, 2013 , compared to 1.40 percent at September 30, 2013 . Classified loans, excluding FDIC -supported loans, decreased approximately 13 percent to $1.2 billion at December 31, 2013 , compared to $1.4 billion at September 30, 2013 . Consistent with recent quarters, approximately 84 percent were current as to principal and interest. Net loan and lease charge-offs increased to $19 million in the fourth quarter of 2013, compared to $9 million in the third quarter of 2013. The negative provision for loan losses was $31 million for the fourth quarter of 2013, compared to a negative provision of $6 million for the third quarter of 2013. The negative provision continues to result from the improvement in credit quality. The allowance for credit losses was $836 million , or 2.14 percent of loans and leases at December 31, 2013 , compared to $882 million , or 2.30 percent of loans and leases at September 30, 2013 . The Company's allowance for credit losses remains among the strongest of its peer regional banks. More information: www.zionsbancorporation.com ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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