Zions Bancorp.'s CEO Discusses Q1 2012 Results - Earnings Call Transcript

Zions Bancorp. (ZION)

Q1 2012 Earnings Call

April 23, 2012 5:30 pm ET


James R. Abbott - Senior Vice President of Investor Relations & External Communications

Harris H. Simmons - Chairman, Chief Executive Officer, President, Member of Executive Committee and Chairman of Zions First National Bank

Doyle L. Arnold - Vice Chairman, Chief Financial Officer and Executive Vice Presiden

Kenneth E. Peterson - Chief Credit Officer and Executive Vice President

Unknown Executive -

David E. Blackford - Executive Vice President, Chairman of California Bank & Trust, Chief Executive Officer of California Bank & Trust and President of California Bank & Trust


Paul J. Miller - FBR Capital Markets & Co., Research Division

Jeffrey Lengler - Goldman Sachs Group Inc., Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Leanne Erika Penala - BofA Merrill Lynch, Research Division

David Rochester - Deutsche Bank AG, Research Division

R. Scott Siefers

Craig Siegenthaler - Crédit Suisse AG, Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Joe Morford - RBC Capital Markets, LLC, Research Division

Kenneth M. Usdin - Jefferies & Company, Inc., Research Division

Michael Turner - Compass Point Research & Trading, LLC



Welcome to the Zions Bancorporation First Quarter 2012 Earnings Call. This call is being recorded. I will now turn the time over to James Abbott.

James R. Abbott

Good evening, and we welcome you to this conference call to discuss our first quarter 2012 results. 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 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 on our website at zionsbancorporation.com. We will limit the length of this call to 1 hour, which will include time for you to ask questions. [Operator Instructions] Now, we'll turn the time over to Harris Simmons, our Chairman and Chief Executive Officer. Harris?

Harris H. Simmons

Thank you very much, James, and we want to welcome all of you to this earnings call this evening. We are, obviously, particularly pleased by the progress we are able to make in the first quarter with regard to our capital plan, as I suspect most of you know, the reduction in our overall cost of capital and the simplification of our capital structure over the next 3 to 5 years should be one of the primary drivers of improvement in our profitability and return on equity. With redemption of $700 million of TARP at the end of March and with the targeted redemption of the remainder of TARP in the second half of this year, we will move meaningfully closer to what we believe to be the long-term earnings power of the company.

Looking to the fundamentals, overall, we are quite pleased with the progress on asset quality this quarter, although there's some noise in the classified loan trends, which is mentioned in the release and which we will address a bit later in the call. But net charge-offs declined 43% from the fourth quarter level to an annualized 60 basis points of loans, which is a level that we haven't seen since the first quarter of 2008.

We also saw some further decline in nonaccrual loans, which declined 4% sequentially. Nonaccrual loans are down more than 60% from the peak, but at 2.4% of loans we know that we still have some further work to do to get them down to a more normalized level consistent with our history.

The softest spot for us in the first quarter was loan growth compared to the fourth quarter, which is something we also highlighted as a first quarter challenge at our last earnings call.

As noted in the press release, most of this decline occurred in January and February. While average loans were essentially stable, the ending balance in March was down 1.5% from where it was at the beginning of the quarter. About 1/2 of the decline came from owner occupied loans and about 1/3 from commercial and industrial loans.

This is partially driven by our business mix, which is skewed toward the small business customer, where we saw less demand in the quarter. We do see signs that borrowing for small business loan customers will strengthen in the second quarter. And as new financial statements come in and they're -- and these businesses continue to show a little more strength, we expect that more and more of them will be eligible for additional loans to expand their businesses.

On the middle market and corporate banking side, declines in balances were generally attributable to a paydown on lines of credit rather than the loss of a customer. We are actually seeing some growth in commitments, but we're seeing line utilization down. Our line utilization rate declined to 32.3% from 35% just 3 months ago. So it's about as weak as we've seen it for some time.

Although loan pricing remains competitive, it was generally stable compared to the prior quarter. We do see some moderate loosening of structure and terms in the marketplace. We have generally resisted that pressure and we'd expect to continue to do so.

I'm also pleased to report that noninterest expense declined. This has been an area of focus for all of us, something that we continue to watch closely. Excluding the noisy items in the fourth quarter, expenses declined 4% from the fourth quarter. Much of this decline is attributable to an improvement in credit-related items, which is consistent with our past guidance.

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