With next year's CCAR on the radar, Zions (NASDAQ:ZION) notes a number of steps taken in Q3 to cut risk and build capital, including the issuance of $525M of common stock, reduction of $835M par amount of long-term debt, reduction of $447M in construction and land development loans through conversions to term, syndications, and increased participations, and sales of $174M and paydowns of $32M of CDOs.
Net interest income of $417M in Q3 is about unchanged from Q2, with NIM of 3.20% down nine basis points.
Noninterest income of $116M slips from $125M thanks to $19M of losses booked on CDO sales.
Noninterest expense of $439M up from $406M thanks to the expenses associated with debt extinguishment.
Improved credit quality with nonperforming lending-related assets of $335M down 12%. Nonperforming loan ratio of 0.84% down 11 basis points.
Tier 1 common equity ratio of 11.88% rises from 10.45%. Tangible book value per share of $26 up from $25.13.
Q3 core earnings plus drop income of $49.7M or $0.31 per share vs. $53.3M and $0.33 in Q2. Dividend is $0.30
Book value per share of $10.14 vs. $10.31 at end of Q2. Today's close of $8.94 is an 11.8% discount to book.
Net interest spread of 1.60% falls 18 basis points from Q2, as cost of funding and hedging rose to 1.31% in Q3 from 1.08% a quarter earlier.
CPR of 9.3% rises from 7.6% in Q2.
Leverage increases modestly - to 6.63:1 from 6.35:1.
Portfolio composition: The company rotated somewhat out of its long Treasury position, selling $1.5B of government paper and buying a similar amount of 30-year fixed mortgages. Management feels the current environment should limit prepayments and is therefore comfortable boosting exposure to long-dated fixed mortgages.