Zions Bancorporation (
Q3 2010 Earnings Call
October 18, 2010 5:30 p.m. ET
James Abbott – SVP, IR and External Communications
Harris Simmons – Chairman, President and CEO
Doyle Arnold – Vice Chairman and CFO
Ken Peterson – EVP and Chief Credit Officer
Brian Klock – Keefe, Bruyette, and Woods
John Pancari - Evercore Partners
Marty Mosby - Guggenheim Securities
Ken Zerbe – Morgan Stanley
Steven Alexopoulos – JPMorgan
Joe Morford – RBC Capital Markets
Jennifer Demba – SunTrust Robinson Humphrey
Brian Zabora – Stifel Nicolaus
Peter [inaudible] with Carlson Capital
Previous Statements by ZION
» Zions Bancorporation Q2 2010 Earnings Call Transcript
» Zions Bancorporation Q1 2010 Earnings Call Transcript
» Zions Bancorporation Q4 2009 Earnings Call Transcript
» Zions Bancorporation Q3 Earnings Call Transcript
Good day ladies and gentlemen and thank you for standing by, and welcome to the Zions Bancorporation third quarter 2010 earnings call. This call is being recorded. I would now like to turn the time over to James Abbott, director of investor relations. Please go ahead.
Thank you. We welcome you to this conference call to discuss our third quarter 2010 earnings.
I would like to remind you that during this call we will be making forward-looking statements and that actual results may differ materially. We encourage you to review the disclaimer in the press release dealing with forward-looking information, which applies equally to the statements made in this call. We will be referring to several schedules in the press release during this call. If you do not yet have a copy of the press release, it is available as an Adobe Acrobat file at zionsbancorporation.com and can be downloaded and printed.
We will limit the length of this call to one hour, which will include the time for you to ask questions. During the Q&A section, we will ask you to limit your questions to one primary and one follow-up question to enable other participants to ask questions.
I will now turn the time over to Harris Simmons, chairman and chief executive officer. Harris?
Thank you very much, James, and thank you to all of you who are joining us this afternoon for our call. We are quite encouraged with our third quarter results, with core pre-tax, pre-credit income relatively stable, moderating rate of decline in our loan balances, and a broad-based improvement in credit metrics, specifically the continued decline in problem credits and a significantly lower rate of inflow into the various problem credit categories.
Looking at our results, there were several items that obscured some of our core operating trends and we've identified them throughout the release. A good example would be our FDIC indemnification asset. As our credit quality has improved, we write that asset down, it actually increases our non-interest expense. There's some offset non-interest income but you really have to pull some of those items out to get a clear picture.
When you adjust for these items, you'll see, I think, that we have relatively stable core earnings before credit costs when compared to the prior quarter. On a GAAP basis, we reported a loss of $0.47 per common share to shareholders, an improvement from a loss of $0.84 per share in the prior quarter.
We're pleased with the credit performance - non-accrual loans, delinquent loans, net charge-offs, and provisions all declined compared to the prior quarter. We still have, certainly, work ahead of us. We certainly not have declared victory yet, but we're encouraged with the [inaudible] rate of new, non-accrual inflows and a healthy rate of problem credit resolution.
In the third quarter, we resolved more than 20% of our non-accrual and real estate-owned assets, which is consistent with the resolution rate year to date in terms of the amount of the beginning balance that we've been able to resolve during the quarter.
As we look at various macro-economic trends within our footprint, we see more signs of emerging optimism than pessimism these days. In the real estate markets we're seeing rental income, though still declining moderately within various major markets within our footprint, is showing signs of stabilizing. Vacancy trends are stable to improving across the majority of our footprint. Furthermore, cap rates are showing some consistent signs of stabilizing during the last several months across a wide variety of geographies and property types.
All of these factors facilitate faster problem credit resolution. Importantly, non-accrual term commercial real estate loans declined for the second consecutive quarter, are now down 19% from their peak. Losses from these loans also declined to about a 1.6% annualized charge-off rate of total term CRE loans, down from 2.1% in the prior quarter.
Finally, we further enhanced both our GAAP and our regulatory capital ratios during the quarter through the issuance of common shares, warrants, preferred stock via sub-debt conversion, and by reducing the risk weighting of certain securities. So we've been very busy this quarter.
With that overview, I will ask Doyle Arnold, our vice chairman and chief financial officer, to review the quarterly performance.
Thank you Harris. Good afternoon everyone. As noted in the release, we posted a net loss applicable to common shareholders of $80.5 million or $0.47 per diluted common share for the third quarter. That's a significant improvement over the prior quarter and the same quarter a year ago. I'm going to highlight primarily three key areas: revenue, credit, and capital, and then we will take your questions.
First, the revenue drivers. The GAAP NIM expanded 26 basis points to 3.84%, from 3.58% in the prior quarter. A big driver of that was the fact that the adverse impact of subordinated debt amortization on the NIM was only 35 basis points this quarter compared to 64 in the prior, and that is because a significantly smaller amount of sub-debt exercised its right to convert [its first shares] this quarter than compared to the prior quarter.