Add
ZION to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ZION > SEC Filings for ZION > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
FINANCIAL HIGHLIGHTS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share and ratio data) 2008 2007 % Change 2008 2007 % Change
EARNINGS
Taxable-equivalent net interest income $ 497,822 $ 483,115 3.04 % $ 1,480,946 $ 1,422,896 4.08 %
Taxable-equivalent revenue 587,432 628,938 (6.60)% 1,753,928 1,855,474 (5.47)%
Net interest income 492,003 476,637 3.22 % 1,463,204 1,403,067 4.29 %
Noninterest income 89,610 145,823 (38.55)% 272,982 432,578 (36.89)%
Provision for loan losses 156,606 55,354 182.92 % 363,080 82,228 341.55 %
Noninterest expense 372,276 352,031 5.75 % 1,076,796 1,051,622 2.39 %
Income before income taxes and minority interest 52,731 215,075 (75.48)% 296,310 701,795 (57.78)%
Income taxes 11,214 71,853 (84.39)% 83,147 246,772 (66.31)%
Minority interest 3,757 7,490 (49.84)% (3,544) 6,819 (151.97)%
Net income 37,760 135,732 (72.18)% 216,707 448,204 (51.65)%
Net earnings applicable to common shareholders 33,351 131,962 (74.73)% 207,391 437,224 (52.57)%
PER COMMON SHARE
Net earnings (diluted) 0.31 1.22 (74.59)% 1.93 4.01 (51.87)%
Dividends 0.43 0.43 - 1.29 1.25 3.20 %
Book value per common share 45.78 46.92 (2.43)%
SELECTED RATIOS
Return on average assets 0.28% 1.10% 0.54% 1.24%
Return on average common equity 2.59% 10.50% 5.42% 11.74%
Efficiency ratio 63.37% 55.97% 61.39% 56.68%
Net interest margin 4.13% 4.44% 4.18% 4.49%
|
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except share and ratio data) 2008 2007 % Change 2008 2007 % Change
AVERAGE BALANCES
Total assets $ 54,279,760 $ 48,903,319 10.99 % $ 53,498,514 $ 48,141,571 11.13 %
Total interest-earning assets 47,984,725 43,200,858 11.07 % 47,349,240 42,354,935 11.79 %
Securities 4,582,727 5,221,722 (12.24)% 4,928,877 5,480,047 (10.06)%
Net loans and leases 41,984,123 37,194,850 12.88 % 40,654,431 36,254,519 12.14 %
Goodwill 2,009,509 2,015,532 (0.30)% 2,009,501 2,003,972 0.28 %
Core deposit and other intangibles 132,167 177,864 (25.69)% 138,711 186,884 (25.78)%
Total deposits 37,321,656 35,756,600 4.38 % 36,898,398 35,636,209 3.54 %
Core deposits (1) 33,227,950 31,017,730 7.13 % 32,547,862 30,692,123 6.05 %
Minority interest 29,949 37,527 (20.19)% 29,292 37,747 (22.40)%
Shareholders' equity:
Preferred equity 282,500 240,000 17.71 % 254,270 240,000 5.95 %
Common equity 5,123,399 4,987,275 2.73 % 5,106,750 4,978,473 2.58 %
Weighted average common and
common-equivalent shares outstanding 108,497,464 107,879,963 0.57 % 107,333,422 109,059,322 (1.58)%
AT PERIOD END
Total assets $ 53,974,168 $ 50,044,686 7.85 %
Total interest-earning assets 47,656,065 44,104,956 8.05 %
Securities 4,755,359 5,261,057 (9.61)%
Net loans and leases 41,887,693 37,822,259 10.75 %
Allowance for loan losses 609,433 418,165 45.74 %
Reserve for unfunded lending commitments 23,574 21,394 10.19 %
Goodwill 2,009,504 2,021,519 (0.59)%
Core deposit and other intangibles 133,989 172,140 (22.16)%
Total deposits 38,590,901 35,774,713 7.87 %
Core deposits (1) 33,854,963 31,170,466 8.61 %
Minority interest 30,288 37,411 (19.04)%
Shareholders' equity:
Preferred equity 286,949 240,000 19.56 %
Common equity 5,279,078 5,016,980 5.22 %
Common shares outstanding 115,302,598 106,934,360 7.83 %
Average equity to average assets 9.96% 10.69% 10.02% 10.84%
Common dividend payout 138.44% 34.96% 66.72% 30.96%
Tangible equity ratio 6.60% 6.40%
Nonperforming assets $ 924,442 $ 196,575 370.27 %
Accruing loans past due 90 days or more 97,831 64,516 51.64 %
Nonperforming assets to net loans and
leases and other real estate owned at
period end 2.20% 0.52%
|
(1) Amount consists of total deposits excluding brokered deposits and time deposits $100,000 and over.
ZIONS BANCORPORATION AND SUBSIDIARIES
FORWARD-LOOKING INFORMATION
Statements in Management's Discussion and Analysis that are based on other than historical data are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:
• statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Zions Bancorporation ("the Parent") and its subsidiaries (collectively "the Company," "Zions," "we," "our," "us");
• statements preceded by, followed by or that include the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "projects," or similar expressions.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in the Management's Discussion and Analysis. Factors that might cause such differences include, but are not limited to:
• the Company's ability to successfully execute its business plans, manage its risks, and achieve its objectives;
• changes in political and economic conditions, including the economic effects of terrorist attacks against the United States and related events;
• changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;
• fluctuations in markets for equity, fixed-income, commercial paper and other securities, including availability, market liquidity levels, and pricing;
• changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;
• acquisitions and integration of acquired businesses;
• increases in the levels of losses, customer bankruptcies, claims and assessments;
• changes in fiscal, monetary, regulatory, trade and tax policies and laws, including policies of the U.S. Department of Treasury and the Federal Reserve Board;
• the Company's participation or lack of participation in governmental programs implemented under the Emergency Economic Stabilization Act, including without limitation the Troubled Asset Relief Program and the Capital Purchase Program, and the impact of such programs and related regulations on the Company and on international, national, and local economic and financial markets and conditions;
• continuing consolidation in the financial services industry;
• new litigation or changes in existing litigation;
• success in gaining regulatory approvals, when required;
• changes in consumer spending and savings habits;
• increased competitive challenges and expanding product and pricing pressures among financial institutions;
• demand for financial services in the Company's market areas;
• inflation and deflation;
• technological changes and the Company's implementation of new technologies;
• the Company's ability to develop and maintain secure and reliable information technology systems;
• legislation or regulatory changes which adversely affect the Company's operations or business;
• the Company's ability to comply with applicable laws and regulations;
ZIONS BANCORPORATION AND SUBSIDIARIES
• changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; and
• increased costs of deposit insurance and changes with respect to FDIC insurance coverage levels.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the 2007 Annual Report on Form 10-K of Zions Bancorporation filed with the Securities and Exchange Commission ("SEC") and available at the SEC's Internet site (http://www.sec.gov).
The Company 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.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company has made no significant changes in its critical accounting policies and significant estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2007, except as noted below.
Fair Value Accounting
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 157 defines fair value, establishes a consistent framework for measuring fair value, and enhances disclosures about fair value measurements. Adoption of SFAS 157 has been delayed one year for the measurement of all nonfinancial assets and nonfinancial liabilities. The adoption of SFAS 157 did not have a material effect on the Company's consolidated financial statements, but significantly expanded the disclosure requirements for fair value measurements.
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, SFAS 157 has established a hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities; includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets; certain securities sold, not yet purchased; and certain derivatives.
Level 2 - Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities; certain collateralized debt obligations ("CDO") securities; corporate debt securities; certain private equity investments; certain securities sold, not yet purchased; and certain derivatives.
Level 3 - Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Additionally, observable inputs such as nonbinding single dealer quotes that are not corroborated by observable market data are included in this category. This category generally includes certain private equity investments, retained interests in securitizations, and certain CDO securities.
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company uses models when quotations are not available for certain securities or in markets where trading activity has slowed or ceased. When quotations are not available, and are not provided by third party pricing services, management judgment is necessary to determine fair value. In situations involving management judgment, fair value is determined using discounted cash flow analysis or other valuation models, which incorporate available market information, including appropriate benchmarking to similar instruments, analysis of default and recovery rates, estimation of prepayment characteristics and implied volatilities.
At September 30, 2008, approximately 5.9% of total assets, or $3.2 billion, consisted of financial instruments recorded at fair value on a recurring basis. Approximately 75.6% or $2.4 billion of these financial instruments used valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. Approximately 24.4% or $772 million of these financial assets are measured using model-based techniques or nonbinding single dealer quotes, both of which constitute Level 3 measurements. At September 30, 2008, approximately 0.40% of total liabilities, or $196 million, consisted of financial instruments recorded at fair value on a recurring basis. At September 30, 2008, approximately 0.52% of total assets, or $281 million of financial assets were valued on a nonrecurring basis. Of the $281 million of assets valued on a nonrecurring basis, approximately $217 million were valued at Level 2 and $64 million were valued at Level 3.
Fair Value Option
SFAS 159 allows for the option to report certain financial assets and liabilities at fair value initially and at subsequent measurement dates with changes in fair value included in earnings. The option may be applied instrument by instrument, but is on an irrevocable basis. On January 1, 2008, the Company applied the fair value option to one available-for-sale real estate investment trust ("REIT") trust preferred CDO security and three retained interests on selected small business loan securitizations. The REIT CDO and retained interests were valued using Level 3 models. The cumulative effect of adopting SFAS 159 reduced the beginning balance of retained earnings at January 1, 2008 by approximately $11.5 million, comprised of a decrease of $11.7 million for the REIT CDO and an increase of $0.2 million for the three retained interests. During the third quarter of 2008, the net change in fair value for the REIT CDO decreased pretax earnings by approximately $0.3 million. During the first nine months of 2008, the net change in fair value decreased pretax earnings by approximately $4.8 million, consisting of $2.7 million for the REIT CDO security and $2.1 million for the retained interests. These adjustments to fair value are included in fair value and nonhedge derivative income (loss) in the statement of income.
The Company elected the fair value option for the REIT CDO security as part of a directional hedging program in an effort to hedge the credit exposure the Company has to homebuilders in its REIT CDO portfolio. Management selected this security because it had the most exposure to the homebuilder market compared to the other REIT CDO securities in the Company's portfolio, both in dollar amount and as a percentage, and was therefore considered the most suitable for hedging. The fair value option adoption for the REIT CDO allows the Company to avoid the complex hedge accounting provisions under SFAS No. 133, Accounting for Derivatives, associated with the implemented hedging program.
On June 23, 2008, Zions Bank purchased $787 million of securities from Lockhart, which comprised the entire remaining small business loan securitizations created by Zions Bank and held by Lockhart. As a result, the three small business securitization retained interests elected under the fair value option were included in this transaction and were part of the premium amount recorded with the loan balances at Zions Bank. See "Off-Balance Sheet Arrangement" for further discussion of these securities purchased.
ZIONS BANCORPORATION AND SUBSIDIARIES
Estimates of Fair Value
The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments, available-for-sale and trading securities, certain private equity investments and certain residual interests from Company-sponsored securitizations. Additionally, fair value is used on a nonrecurring basis to evaluate assets or liabilities for impairment or for disclosure purposes in accordance with SFAS No. 107, Disclosures about Fair Value of Financial Instruments. Examples of these nonrecurring uses of fair value include loans held for sale accounted for at the lower of cost or fair value, certain private equity investments, impaired loans, long-lived assets, goodwill, and core deposit and other intangible assets. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating the instrument's fair value. These valuation techniques and assumptions are in accordance with SFAS 157.
Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. If observable market prices are not available, then fair value is estimated using modeling techniques such as discounted cash flow analyses. These modeling techniques utilize assumptions that market participants would use in pricing the asset or the liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance. To increase consistency and comparability in fair value measures, SFAS 157 established a three-level hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data, and unobservable data such as the Company's own data or single dealer nonbinding pricing quotes.
Fair values for investment securities, trading assets, and most derivative financial instruments are based on independent, third party market prices, or if identical market prices are not available they are based on the market prices of similar instruments. If market prices of similar instruments are not available, instruments are valued based on the best available data, some of which may not be readily observable in the market. The fair values of loans are typically based on quotes from market participants. The fair values of OREO and other repossessed assets are typically determined based on appraisals by third parties, less estimated selling costs.
Estimates of fair value are also required when performing an impairment analysis of long-lived assets, goodwill, and core deposit and other intangible assets. The Company reviews goodwill for impairment at the reporting unit level on an annual basis, or more often if events or circumstances indicate the carrying value may not be recoverable. The goodwill impairment test compares the fair value of the reporting unit with its carrying value. If the carrying amount of the Company's investment in the reporting unit exceeds its fair value, an additional analysis must be performed to determine the amount, if any, by which goodwill is impaired. In determining the fair value of the Company's reporting units, management uses discounted cash flow models which require assumptions about growth rates of the reporting units and the cost of equity. To the extent that adequate data is available, other valuation techniques relying on market data may be incorporated into the estimate of a reporting unit's fair value. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the amount that is most representative of fair value. For long-lived assets and intangible assets subject to amortization, an impairment loss is recognized if the carrying amount of the asset is not recoverable and exceeds its fair value. In determining the fair value, management uses models which require assumptions about growth rates, the life of the asset, and/or the fair value of the assets. The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Valuation of Collateralized Debt Obligations
The Company values CDO available-for-sale and held-to-maturity securities using several methodologies based on the appropriate fair value hierarchy consistent with current available market information. At September 30, 2008, the Company valued substantially all of the CDO portfolio using Level 3 pricing methods as follows:
ZIONS BANCORPORATION AND SUBSIDIARIES
Held-to-maturity Available-for-sale
Estimated Estimated
Amortized fair Amortized fair
(In millions) cost value cost value
Trust preferred securities - bank
and insurance:
Internal model $ 1,353 $ 807 $ 715 $ 601
Third party models 9 8
Dealer quotes 17 18
Other 10 9
Level 2 2 2
1,362 815 744 630
Trust preferred securities - real
estate investment trusts:
Third party models 36 24 39 37
Dealer quotes 1 1
36 24 40 38
Small business loan-backed:
Other 13 13
Other:
Third party models 72 55 15 15
Dealer quotes 45 39
Monoline CDS spreads 48 33
72 55 108 87
Total $ 1,470 $ 894 $ 905 $ 768
|
Internal Model
At September 30, 2008, the Company determined that the $1,878 million of bank and insurance trust preferred securities at amortized cost that had previously been valued using a Level 2 matrix pricing approach would require a Level 3 cash flow modeling approach. An additional $190 million of securities at amortized cost previously valued with Level 3 single dealer quotes were also moved to a . . .
|
|