Zions Bancorp. Management Discusses Q4 2012 Results - Earnings Call Transcript
January 28, 2013 11:30 PM ET
Zions Bancorp. (ZION)
Q4 2012 Earnings Call
January 28, 2013 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 - Chief Financial Officer and Vice Chairman
W. David Hemingway - Chief Investment Officer and Executive Vice President of Capital Markets & Investments
Ryan M. Nash - Goldman Sachs Group Inc., Research Division
Paul J. Miller - FBR Capital Markets & Co., Research Division
Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division
Ken A. Zerbe - Morgan Stanley, Research Division
Joe Morford - RBC Capital Markets, LLC, Research Division
Kenneth M. Usdin - Jefferies & Company, Inc., Research Division
Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Zions Bancorporation Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded.
It's now my pleasure to turn the time over to James Abbott. Please go ahead, sir.
James R. Abbott
Thank you, Ian. Good evening. We welcome you to this conference call to discuss our fourth quarter 2012 earnings. Our primary participants today will be Harris Simmons, Chairman and Chief Executive Officer; and Doyle Arnold, Vice Chairman and Chief Financial Officer. I would like to remind you that during this call, we will be making forward-looking statements, although 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.
A copy of the earnings release is available at zionsbancorporation.com. We intend to limit the length of this call to 1 hour, which will include time for you to ask questions. During the Q&A section, we ask you to limit your questions to one primary and one related follow-up question to enable other participants to ask questions.
I will now turn the time over to Harris Simmons. Harris?
Harris H. Simmons
Thanks very much, James, and welcome to all of you to the call today. Before I start into this, I'm going to go off the script for just a moment and briefly recognize James Abbott here. He's been recognized by all of you, both buy and sell side, as the best IR exec in the mid-cap bank space by Institutional Investor Magazine, and we're really proud of James and the role he plays here. So we may have -- or had a lot of moving parts in our net interest margin and other things, but apparently, at least, we give James credit for explaining it well, and I just want to congratulate James in front of his constituents here.
Expectedly, the quarter -- several underlying trends of the fourth quarter were generally quite strong, with better-than-expected performance from credit quality, from certain of our capital levels, loan growth, net interest income. We're encouraged with our ability to cut some cost as we move through 2012, primarily from the cost of debt and preferred equity. We're hopeful that we'll be able to continue to improve our return on equity in 2013 as we intend to further reduce the cost of our capital and financing structure.
Let me touch upon a couple of fundamental highlights for the quarter. Credit quality. First, an 8% national unemployment rate and 2% GDP growth isn't what any of us would call a robust environment, but our credit quality metrics are rapidly returning to levels last seen when the economy was in much stronger shape than it is today. We attribute a portion of the improvement to improved risk management and credit risk reduction efforts for the past few years and, some of it also, the customers' continued ability to repair their personal and business balance sheets despite the tepid economic environment that we're in.
Our net charge-off ratio was only 0.2%, about 20 basis points, a level comparable to the full year of 2007. Our nonperforming asset ratio, expressed as a percentage of loans and other real estate owned dropped just below 2%, and we expect to see further general improvement in net ratio as we continue through the year 2013.
Loan growth. We generally see more variability probably at loan growth in the fourth quarter than other quarters, and this wasn't any exception. As many of you know, we raised the cautionary flag in late November at an investor conference and as loan balances had declined more than $150 million from the end of the third quarter. We subsequently experienced particularly robust growth in December, some of which was related to tax strategies on the part of customers. That would have been obviously unique to the fourth quarter of 2012. Some of it was short-term draws by some of our customers who subsequently paid off a portion of these borrowings in the early part of the first quarter.
Excluding the variability that goes with the fourth quarter, our lenders report to us that they remain positive about growth prospects in the loan portfolio. The pipelines are generally still pretty strong. Customers seem to be generally more optimistic than they were 6 months ago, and production volume rose in each quarter of 2012. Although pricing remains competitive, we have not experienced much additional pressure on the loan production in the last 6 months.
Net interest income declined about $8 million or 2% compared to the prior quarter. In November, we said that we anticipated perhaps a 2% to 3% decline in core net interest income. And while we haven't calculated that for you in this release, I'll note the decline was less than anticipated. We currently believe that net interest income should be relatively stable in 2013.
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