DBRS Ratings on Zions Bancorporation Unchanged after 1Q13 Results - Senior at BBB (low), Stable

DBRS, Inc. (DBRS) has today commented that its ratings for Zions Bancorporation (Zions or the Company), including the Company’s Issuer & Senior Debt rating of BBB (low) are unchanged following the release of 1Q13 results. The trend on all ratings is Stable. For 1Q13, Zions reported net income available to common shareholders of $88.3 million, up from $35.6 million for 4Q12. Improved sequential earnings mostly reflected substantially lower impairment losses on investment securities and a material level of negative provisions for loan losses and unfunded lending commitments. Specifically, higher quarter-over-quarter (QoQ) earnings were driven by an 11.4% increase in total revenues, a $18.6 million increase in negative provisions for loan loss reserves and a 2.4% decrease in non-interest expense. Highlights for the quarter included sustained loan growth, continued asset quality improvement, and a solid capital position.

As with most banks, Zions’ core earnings remain pressured by the difficult business environment. Revenues for 1Q13 totaled $539.3 million, up from $484.2 million for 4Q12. Specifically, higher sequential revenue was attributable to a $67.1 million, or 123.8%, increase in non-interest income, partially offset by an $11.8 million, or 2.8%, decline in net interest income. Higher non-interest income was primarily driven by a $73.7 million decline in impairment losses on investment securities. Nonetheless, on an adjusted basis, which excludes the impairment losses and securities related gains, core non-interest income decreased $3.2 million, or 2.5%, sequentially, mostly attributable to a 8.1% decrease in other service charges, commissions and fees and to a lesser extent a 2.0% decline in deposit service charges. Meanwhile, lower spread income reflected a modest 3 bps narrowing of NIM to a still solid 3.44%, and a 0.2% decline in average earnings assets. The narrower NIM mostly reflected two fewer days in the quarter. The Company expects stable spread income for 2Q12.

Continued improvement in Zions’ credit quality led to lower credit related expenses, which drove a $9.7 million, or 2.4%, QoQ, decline in non-interest expenses. Specifically, lower linked-quarter expenses were mostly attributable to a positive $7.3 million swing in provisions for unfunded lending commitments, a $5.2 million, or 33%, decrease in legal and professional services expense, and a $3.3 million, or 62.4%, decline in OREO expense. DBRS notes that during 1Q13, the Company’s bottom line benefited from a $6.3 million negative provision for unfunded lending commitments, as compared to $0.6 million in provisions taken in the prior quarter.

Positively, average loan growth was sustained sequentially. Excluding FDIC supported loans, average loans increased 1.1% in 1Q13, driven by higher levels of commercial & industrial loans, construction and land development loans, and residential mortgages. The Company noted that most of the growth was in the states of Texas and California. Supporting loan growth is a sizable core deposit base that readily funds loans. During 1Q13, average deposits decreased 1.1%, mostly reflecting lower levels of non-interest bearing deposits. Despite the decline and benefiting the Company’s NIM, non-interest bearing deposits represent a substantial 38.8% of average total deposits.

Importantly, Zions continues to exhibit sustained improvement in its asset quality. Specifically, NPAs declined $62.3 million, or 8.3%, to $684.0 million and represented a manageable 1.80% of loans and OREO (excluding performing restructured loans) at March 31, 2013, down from 1.96% at the end of 4Q12. Meanwhile, NCOs further improved, and represented a low 0.19% of average loans, down from 0.20% in 4Q12. Reflecting positively on future credit quality, classified loans (excluding FDIC supported loans) continued to decline. These positive trends supported a negative provision for loan losses of $29.0 million in 1Q13, compared to a negative provision of $10.4 million in 4Q12. At current loss rates, Zions’ loan loss reserve coverage remains adequate in DBRS’s view at 141.7% of nonperforming loans and 2.23% of total loans.

Zions’ capital profile is sound in DBRS’s view. At March 31, 2013, the Company’s estimated Tier 1 common equity was 10.06% and Tier 1 ratio was 14.04%.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on June 25, 2014 to remove unnecessary disclosures.]