Zions Bancorporation, National Association (ZION)
Filed: 30 Nov 09, 12:00am
David Blackford
CEO & President
California Bank & Trust
CEO & President
California Bank & Trust
December 1, 2009
Portfolio and Performance Update
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CB&T Overview
® $11 billion in assets
® 116 branches
throughout California
throughout California
® $9.2 billion in loans
® $9.4 billion in
deposits
deposits
® Accomplished
management team
in place for last 10
years
management team
in place for last 10
years
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Bank Performance
® Loans:
Ø Modest growth since 2004 (less than 3% organic CAGR)
® Deposits:
Ø 32% DDA, 80% core deposits1
Ø Stable, low cost deposit base to relationship customers
® Profitability:
Ø YTD NIM of 4.76% - -among the highest in the country (92nd
percentile)(2)
percentile)(2)
Ø Flat expenses since 2004 provide strong operating efficiency (88th
percentile) (2)
percentile) (2)
® Strategic Growth:
Ø Low risk expansion thru 2 FDIC assisted acquisitions in 2009
(1) Excludes all CDs and Foreign Deposits
(2) Source: SNL Financial Sept 09 YTD. Compared to coml.. banks with assets
>$2.0B. Adj. for FDIC Insurance Assessment and Alliance and Vineyard acq.
>$2.0B. Adj. for FDIC Insurance Assessment and Alliance and Vineyard acq.
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Credit Metrics
2008 | Sept. 2009 YTD | ||
Non-accrual Loans / Loans | 1.72 | 2.75 | |
Net Charge-offs / Avg Loans | 0.78 | 1.79 | Provision 156 bp higher than NCO: Result = $95MM reserve build 2009 |
Loan Loss Provision / Avg Loans | 1.05 | 3.35 | |
ACL / NPLs | 98.6 | 107.0 | Over 100% coverage |
ACL / Loans | 1.69 | 2.94 |
® Strong core operating earnings have enabled us to build reserves and
expediently dispose of real estate assets in weaker markets
expediently dispose of real estate assets in weaker markets
® Credit deterioration has been manageable
Data excludes FDIC Supported Assets
Sept YTD charge-offs and provision annualized for ratios
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California Housing Overview
® Improving demand for finished lots in all Western
markets
markets
Ø Lot prices increasing as inventory contracts
® Very recent signs of SFR stabilization appearing
Ø October 2009 year over year SFR price increase for
Orange County, San Diego, and the Bay Area, with LA
decline in single digits.
Orange County, San Diego, and the Bay Area, with LA
decline in single digits.
Ø Affordability much improved following 30-40% price
declines from peak
declines from peak
® Entitled land demand remains soft, although prices
expected to firm as finished lot inventory reduces
expected to firm as finished lot inventory reduces
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California Commercial Overview
® Valuation declines driven by:
Ø Rising Cap rates
Ø Increase in vacancy rates across all product types
Ø Rental rate declines and larger concessions
® Current prices off 40% from 2007 peak (Moody’s REAL Cml.
PPI Index)
PPI Index)
® No safe haven - all product types affected
® Huge wave of CMBS and bank loans maturing that
will not qualify for refinance
will not qualify for refinance
® CBT proactively identifying at-risk projects to
resolve
resolve
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® Lending practices have constrained problem loan
migration and limited loss exposure
migration and limited loss exposure
® Careful Loan Origination
Ø Strong initial underwriting
Ø LTV maintenance
Ø Remargin requirements
Ø Market and loan diversification
Ø Borrower financial capacity to support project
® Rigorous Loan Management
Ø Early problem recognition
Ø Reappraise and remargin - first mover advantage
Ø Concentrated efforts to reduce exposure
Ø Solution oriented
Ø Intense executive management involvement and support
CBT’s Lending Philosophy
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Loan Growth
Average loans ($MM)
Average loans ($MM)
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CBT Loan Portfolio
Outstandings of 9/30/09
Outstandings of 9/30/09
1st TD Mortgages
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CBT Loan Portfolio
Outstandings of 9/30/09
Outstandings of 9/30/09
Owner Occupied Real
Estate
Estate
Ø Well secured smaller loans
Ø Diversification by product
and geography
and geography
Ø Largely plain vanilla RE
SBA 504
Ø Problems arising from
business failures
business failures
Ø 504 NPLs to total at 9/30 =
6.2%.
6.2%.
Ø Loss content mitigated by
60% LTV/LTC at origination
60% LTV/LTC at origination
Ø CO = .32% total 2008, 1.1%
2009 Sept YTD annualized
2009 Sept YTD annualized
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CBT Loan Portfolio
Outstandings of 9/30/09
Outstandings of 9/30/09
Commercial Real Estate
Ø Specialized RE lending group
for construction and larger
term
for construction and larger
term
Ø Branch and Cml. network
originations small investor
miniperms with strong
guarantees
originations small investor
miniperms with strong
guarantees
Ø Portfolio within targets for
market and product
diversification
market and product
diversification
Ø Substantial reductions in at-
risk product types
risk product types
Ø Construction outstandings down
$575MM (35%) from 12/31/07
$575MM (35%) from 12/31/07
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CBT Commercial RE Loan Portfolio
Product Outstandings as of 9/30/09
Product Outstandings as of 9/30/09
* Excludes FDIC supported assets
Well Diversified Product Mix
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CBT Commercial RE Loan Portfolio
CRE as a % of Total Loans
CRE as a % of Total Loans
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CBT Residential Lot and Home Builder Portfolio
Outstandings as of 9/30/09
Outstandings as of 9/30/09
Residential Builder
portfolio = $467M OS
portfolio = $467M OS
Ø Current market conditions
showing improvement
showing improvement
Ø Growing demand for finished
developed lots
developed lots
Ø Multiple offers from major
homebuilders on lot sales
homebuilders on lot sales
Ø Significant success in managing
through residential downturn
through residential downturn
Ø Remaining portfolio manageable
with selected new originations
for developments with solid
market conditions and low LTC
with selected new originations
for developments with solid
market conditions and low LTC
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Residential Construction Commitment Declines
$2.1 billion ê
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Commercial Construction and Term Real Estate
® CBT’s commercial
strategy has mitigated
impact
strategy has mitigated
impact
Ø Utilize refinancing interest
rates for initial underwriting
rates for initial underwriting
Ø 55-70% LTV at origination -
Sponsorship with solid equity
and remargin requirements
Sponsorship with solid equity
and remargin requirements
® Originations spread over 10
year period
year period
® Reappraisal stress primarily
limited to 2006-2007 vintages
limited to 2006-2007 vintages
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Capitalization Rate Trends
Source: CB Richard Ellis, Inc., Market View
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Commercial Term Originations
Asset value declines = opportunity for better
structure and pricing = increase in CBT loan
originations 2nd half 2008
structure and pricing = increase in CBT loan
originations 2nd half 2008
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Commercial Construction Real Estate
® Completed cash-flowing projects represent bulk of
commercial construction exposure (which is less than
10% CBT loan total)
commercial construction exposure (which is less than
10% CBT loan total)
Ø Interest reserve use limited to construction period
Ø Cash flow sweeps or out-of-pocket payments cover interest for
completed projects
completed projects
Ø No increases to loan amount to repack interest reserves
Ø Over 90% of watch credits reappraised during 2009
Ø Commercial construction disposition strategy mirrors
successful residential efforts
successful residential efforts
Ø Identify at-risk projects
Ø Reappraise, restructure and remargin
Ø Dispose at market-clearing prices
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Product Summary - Commercial RE
Outstandings as of 9/30/09
David note:
Construction
“Other”
comprised of
Cml. land =
$103MM
Construction
“Other”
comprised of
Cml. land =
$103MM
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OREO
CBT OREO exposure low due to
ability and willingness to react at
market clearing prices via note
sales prior to foreclosure or rapidly
following transfer to OREO
ability and willingness to react at
market clearing prices via note
sales prior to foreclosure or rapidly
following transfer to OREO
3Q 09 exposure
reduced by $8MM 11/09
reduced by $8MM 11/09
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FDIC Failed Bank Acquisitions
® February 2009 - Alliance Bank headquartered in Culver
City, CA
City, CA
Ø $925MM loans, five branches
Ø Successful integration onto CBT platform
Ø Removed brokered and money desk CDs
Ø $264MM or 28% resolved in first seven months
® July 2009 - Vineyard Bank HQ in Corona, CA
Ø $1.3 billion loans, 16 branches
Ø $146MM bargain purchase price
Ø Strengthens CBT’s franchise in eastern LA and the stronger
western portion of Inland Empire (CBT to keep 13 branches)
western portion of Inland Empire (CBT to keep 13 branches)
Ø CBT investing in branch network
Ø Platform for business and commercial banking expansion
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Conclusion
® Core franchise operating very profitability
® One of the highest NIMs for a bank our size,
coupled with a low efficiency ratio, results in high pre-
tax, pre-provision operating income to absorb credit
costs
coupled with a low efficiency ratio, results in high pre-
tax, pre-provision operating income to absorb credit
costs
Ø Significant reserve build 2009 ($94MMM Sept YTD)
® CBT business strategy effectively implemented
Ø Moderate 10 year growth (CAGR 5.0%)
Ø Disciplined underwriting and loan management
Ø Reality based approach to problem loan identification
and resolution
and resolution
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2010 Look forward
® 2010 expected to be transitional year
® However, scrubbed real estate portfolio and
commercial loan growth sets stage for
improvement late 2010 and into 2011
commercial loan growth sets stage for
improvement late 2010 and into 2011
® Counter-cyclical lending opportunities provide
excellent structure and improved pricing
excellent structure and improved pricing
® CBT projected to emerge early and strong
from current downturn
from current downturn