Zions Bancorporation Reports Fourth Quarter 2017 Financial Results

SALT LAKE CITY, January 22, 2018 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the fourth quarter of 2017 of $114 million, or $0.54 per diluted common share, compared to net earnings applicable to common shareholders of $152 million, or $0.72 per diluted common share, for the third quarter of 2017 and net earnings applicable to common shareholders of $125 million, or $0.60 per diluted common share, for the fourth quarter of 2016. Annual net earnings applicable to common shareholders for 2017 was $550 million, or $2.60 per diluted common share, compared to $411 million, or $1.99 per diluted common share, for 2016.

Fourth Quarter 2017 Highlights

Net Interest Income and Net Interest Margin

  • Net interest income was $526 million, up 10%
  • NIM was 3.45% compared with 3.37%

Operating Performance

  • Pre-provision net revenue ("PPNR") was $257 million, up 21%
  • Adjusted PPNR was $259 million, up 19%
  • Noninterest expense was $417 million, compared with $404 million
  • Adjusted noninterest expense was $415 million, compared with $395 million
  • Efficiency ratio was 61.6%, compared with 64.5%

Loans and Credit Quality

  • Net loans and leases were $44.8 billion, compared with $42.6 billion
  • Classified loans declined 28% and nonperforming assets declined 27%
  • Provision for credit losses was $(12) million, compared with less than $1 million
  • Annualized net charge-offs were 0.11% of average loans compared with 0.25%

Capital Returns

  • Return on average tangible common equity was 7.4%, compared with 8.4%
  • Common stock repurchases of $115 million, 2.3 million shares, or 1.2% of shares outstanding as of September 30, 2017, during the quarter
  • Common dividend increased to $0.16 per share from $0.08 per share

Notable Items

  • $47 million tax expense associated with the revaluation of deferred tax assets related to the Tax Cuts and Jobs Act
  • $12 million contribution to a charitable foundation, also related to the Tax Cuts and Jobs Act

CEO Commentary

Harris H. Simmons, Chairman and CEO, commented, "We are pleased with the results of both the quarter and the year. Fourth quarter earnings per share increased to $0.80, a 33% increase over the prior-year period, when adjusted for both the deferred tax asset revaluation and the larger charitable contribution expense, which were directly related to the passage of tax reform legislation. When adjusted for these items, the efficiency ratio improved materially to 59.8%, and the return on tangible common equity rose to 10.9%, up from 8.4% in the year-ago period." Mr. Simmons continued, "We were pleased with loan growth over the year-ago period, which increased at a rate roughly double that of large domestic commercial banks. We've also seen strong improvement in credit quality, with classified loans and other measures of quality at their best levels in a number of years."

Mr. Simmons concluded, "We are pleased to have achieved each of the financial goals we established in mid-2015, and we remain focused on building a culture of continuous improvement and operational excellence that will allow us to continue to produce profitable growth in the years ahead."

Net Interest Income and Margin

Net interest income increased to $526 million in the fourth quarter of 2017 from $480 million. The $46 million, or 10%, increase in net interest income was due to a $39 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 a $21 million increase in interest on securities, resulting from a 3.4 billion, or 28%, increase in the size of the average investment securities portfolio. Interest expense increased $15 million primarily due to an increase in wholesale borrowings and a $4 million increase in interest on deposits.

The net interest margin remained at 3.45% in the fourth quarter of 2017 when compared with the third quarter of 2017. The rate paid on total average deposits and average wholesale borrowings increased by 1 basis point and 9 basis points, respectively. The rate earned on average available-for-sale securities decreased 8 basis points due to increased prepayments of Small Business Administration ("SBA") backed securities. These changes were offset during the quarter by an increase in the average loan yield (3 basis points), primarily on commercial real estate loans (8 basis points) and commercial loans (4 basis points).

Noninterest Income

Total noninterest income for the fourth quarter of 2017 increased by $11 million, or 9%, to $139 million from $128 million. The increase was driven by a $9 million increase in customer-related fees and a $6 million increase in dividends and other investment income as a result of increased market values of the Company's Small Business Investment Company ("SBIC") investments, partially offset by a $7 million decrease in other noninterest income primarily related to a decline in fair value and nonhedge derivative income resulting from fair value adjustments. The increase in customer-related fees was primarily due to increases in credit card fee income.

Noninterest Expense

Noninterest expense for the fourth quarter of 2017 was $417 million and included a $12 million charitable contribution, which was largely attributable to the passing of the Tax Cut and Jobs Act ("the Act"). Excluding the effect of the contribution, noninterest expense was $405 million, which is generally stable when compared with the $404 million of noninterest expense in the same prior year period.

Salaries and employee benefits increased $13 million as a result of higher incentive compensation, increases in base salaries, and an increase in the Company's profit sharing contribution to the 401(k) plan. The increase in other noninterest expense reflects the $12 million charitable contribution previously discussed. These increases were partially offset by a $5 million decline in professional and legal services primarily due to a decrease in consulting services, and a $4 million decline in the provision for unfunded lending commitments.

Adjusted noninterest expense for the fourth quarter of 2017 increased $20 million, or 5%, to $415 million compared with $395 million for the same prior year period. Adjusted noninterest expense for 2017 increased $61 million, or 4%, to $1.640 billion compared with $1.579 billion for 2016. Excluding the charitable contribution, the increase was $49 million, or 3%, which was consistent with the goal to hold adjusted noninterest expense growth to 2-3% for the fullyear 2017.

Zions met its goal that was initially established in June 2015 to achieve an efficiency ratio in the low 60% range for 2017, with an efficiency ratio of 62.3%. We expect adjusted noninterest expense to increase slightly in 2018 compared with 2017, although we expect revenue to grow at a faster pace, and therefore, we expect additional improvement in the efficiency ratio in 2018. Longer term, we expect the efficiency ratio to be near 60% for the full year 2019. Incentive compensation will continue to be closely aligned with profitability improvement and income growth objectives. For information on non-GAAP financial measures, see pages 18-21.

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Act makes significant changes to the U.S. Internal Revenue Code of 1986, including a decrease in the current corporate federal income tax rate to 21% from 35%, effective January 1, 2018. The estimated impact of the Act on the net deferred tax asset resulted in a non-cash charge of $47 million through income tax expense. Excluding the effects of stock-based compensation and state tax law changes, Zions expects its 2018 statutory and effective tax rates to both be in the 24%-25% range.

Asset Quality

Asset quality improved 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, highlighted by decreases in classified and nonperforming assets. Classified loans and nonperforming assets for the oil and gas-related portfolio decreased $327 million and $143 million, respectively, from the fourth quarter of 2016.

The Company recorded a $(12) million provision for credit losses during the fourth quarter of 2017, compared with $1 million during the third quarter of 2017 and less than $1 million for the fourth quarter of 2016. The $(12) million provision is primarily the result of improving credit quality in the oil and gas-related portfolio and a partial release of the reserve taken for Hurricane Harvey in the third quarter of 2017. The allowance for credit losses was $576 million at December 31, 2017, compared with $632 million at December 31, 2016, or 1.29% and 1.48% of loans and leases, respectively

Loans and Leases

Loans and leases, net of unearned income and fees, increased $2.1 billion, or 5%, to $44.8 billion at December 31, 2017 from $42.6 billion at December 31, 2016, predominantly in commercial and industrial loans and 1-4 family residential loans. Commercial real estate loans declined slightly from the prior year, primarily due to payoffs and moderate originations because of active management of credit risk concentrations. Unfunded lending commitments increased to $20.5 billion at December 31, 2017, compared with $19.3 billion at December 31, 2016.


Total deposits decreased by $0.6 billion, or 1%, from $53.2 billion at December 31, 2016. Average total deposits increased slightly to $52.3 billion for the fourth quarter of 2017 compared with $52.2 billion for the fourth quarter of 2016. Average noninterest bearing deposits increased to $24.0 billion for the fourth quarter of 2017, compared with $23.6 billion for the fourth quarter of 2016, and were 46% of average total deposits compared with 45% for the same prior year period.

Shareholders' Equity

During the fourth quarter of 2017, the Company increased its common stock dividend to $0.16 cents per share from $0.12 cents per share in third quarter of 2017. Common stock repurchases during the current quarter totaled $115 million, or 2.3 million shares, which is equivalent to 1.2% of common stock as of September 30, 2017, at an average price of $49.57 per share. The Company has repurchased $320 million, or 7.0 million shares, of common stock during the last four quarters at an average price of $45.66 per share. The Company has $235 million of buyback capacity remaining in its 2017 capital plan, which spans the timeframe of July 2017 to June 2018. Weighted average diluted shares increased by 4.2 million compared with the fourth quarter of 2016, as repurchased shares were more than offset by the dilutive impact of warrants that have been outstanding since 2008 ("TARP" warrants - NASDAQ: ZIONZ) and 2010 (NASDAQ: ZIONW) and employee grants.

Preferred stock decreased by $144 million from December 31, 2016 to December 31, 2017 as a result of the Company redeeming all outstanding shares of its 7.90% Series F Non-Cumulative Perpetual Preferred Stock during the second quarter of 2017. Preferred dividends are expected to be $7.5 million for the first and third quarters of 2018 and $9.6 million for the second and fourth quarters of 2018.

Tangible book value per common share increased to $30.87 at December 31, 2017, compared with $29.06. The estimated Basel III common equity tier 1 ("CET1") capital ratio was 12.1% at December 31, 2017 compared with 12.1%. Basel III capital ratios are based on the applicable phase-in periods; however, the fully phased-in ratio is not substantially different. For information on non-GAAP financial measures, see pages 18-21.

Supplemental Presentation and Conference Call

Zions has posted a supplemental presentation to its website, which will be used to discuss these fourth quarter results at 5:30 p.m. ET this afternoon (January 22, 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 5750193, 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.

2018 Investor Day

On March 1, 2018, Zions expects to host an investor day, including presentations from various members of Zions Bancorporation and affiliate managers. The event is expected to begin at 8:00 a.m. MST. Please contact Zions' investor relations for further details by emailing investor@zionsbancorp.com or calling 801-844-7637, extension 2.

About Zions Bancorporation

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 Samp;P 500 and NASDAQ Financial 100 indices. Investor information and links to local banking brands can be accessed at zionsbancorporation.com.

Forward-Looking Information

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 (http://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.

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