Zions Bancorporation Earnings Call Insights: Puts & Takes and Amortization Outlook
Puts & Takes
Josh Levin – Citigroup: So, if you look at the expenses, if you back out the $40 million asset debt extinguishment cost, they around $411 million during the quarter. I just want to list the puts and takes, how do you see that $411 number trending over the next few quarters?
Doyle L. Arnold – VC and CFO: Do you want to comment, James?
James R. Abbott – SVP, IR and External Communications: Well, Josh, I think with the core systems replacement project, we’ll begin to ramp up gradually, but it’s always — it’s in effect at this point. We signed the contracted and work has begun. So, that can start — it will start to appear to at this point official. The other credit related cost that are partial offset to that continue to define and we continue to see good performance on inflows and outflows of problem credit, so we’re happy with that direction, and so there is just puts and takes. But I think it will – and then the FDIC indemnification asset of course is underneath the driver of that $411 million that you mentioned, and that will be fairly quickly tapering down. We have about $51 million of expense to go before that’s gone and that will be gone by the end of the third quarter of 2014.
Doyle L. Arnold – VC and CFO: I would just comment that the only significant thing that we’ve kind of changed here is this core project and if you – and these are just rough ballpark numbers at this time, but if you take $200 million and say a third of that is capitalized or less, you know you are at kind of $130 million, $140 million a year – over five years. So you are talking $25 million per year or $6 million per quarter, and that’s ramping, that won’t all pop-up instantly. It will ramp up over some number of quarters probably several. So, I don’t think you are – you are not looking at any significant spike up in total expense, and as we noted were credit related cost and legal settlements and professional or legal services and FDIC premiums should still trend down. So, I don’t think you are looking at significant ramp-up in non-interest expense if any over the next year or so…
Josh Levin – Citigroup: Then on the loan growth side, you guys sounded more optimistic than a lot of your peers which have been dying back expectation. What do you attribute the difference is it just mostly the fact that the small business is more optimistic than large business right now?
Harris H. Simmons – Chairman, President and CEO: If you look at kind of what differentiates us from some of our peers it is that we are more small and middle market business-oriented and that’s where we’re seeing a lot of the activity. We have missed out on a number of larger deals, because we won’t match the pricing that some of the bigger banks are drawing out there on those deals. So I’ve not had a chance to listen to the color and the commentary from many of our peers, but the probably is what distinguishes us.
Doyle L. Arnold – VC and CFO: Our production on the small business really increased in the second quarter it was nice 25% or so percent jump in terms of total volume coming out of the smaller sized loans of new production, compared to the production that we saw in the first quarter.
Harris H. Simmons – Chairman, President and CEO: That’s not an annualized, 25% annual growth rate that’s just a jump in the new originations.
Ken Zerbe – Morgan Stanley: The first question I had is just on the FDIC supported loan income that you are getting. I think I got most of your comments that you mentioned that the $50 million of amortization runs off by the end of the third quarter ’14. But should we expect that number which I guess was in net $6.6 million this quarter. it seems that you have basically twice as much income as amortization over the next two years is this a number that should run as sort of a zero to net positive benefit for the next few quarters, and then a more material positive in the back half of ’14 and then into ’15, how should we think about the net impact there?
Doyle L. Arnold – VC and CFO: By George, I think he’s got it. No, I mean that’s pretty much it. We were trying to highlight a couple of things. One is that, it was unusually large benefit this quarter and there will still be a benefit next quarter, it just won’t be as large, and yes, the expense kind of runs out before the benefit does which will run for another year. So, I think you’ve got it about right. Anything else, James?
James R. Abbott – SVP, IR and External Communications: That’s it. We do expect in this third quarter of this year. So, next quarter, next reporting quarter we expect the revenue number to decline to about the $20 million area, maybe $21 million, $22 million. So, it will be a fairly significant drop, but then you’re right after the indemnification asset expense is exhausted, the revenue remains for a considerable period of time there a year, year and half before it will come to an end. Pre-tax benefit is about $50 million to capital. If you want to look at it instead of earnings stream and accretion to capital, that would be another way to think about it.
Ken Zerbe – Morgan Stanley: Then just one last thing on the CDO, in the section where you were talking about CDOs, you said you had a $4.3 million loss on the sale of six CDOs? Should we read anything into that in terms of the market is becoming a little more liquid, that you might try to sell some of the TruPS a little bit or is that just kind of one-off?
Doyle L. Arnold – VC and CFO: I don’t think the market is not yet liquid enough that we’re likely to sell material amounts unless we see further improvement, but I mean, one of the things that motivated us to do that was, we did want to kind of test the pricing on a variety of tranches at different points in waterfall, that were directly securities that owned to kind of further validate our pricing of the whole portfolio. So we selected six securities that were representative of very different parts of our risk exposure and generally, I would just say those prices tended to validate exactly what we’ve been doing.
A Closer Look: Zions Bancorporation Earnings Cheat Sheet>>