Zions Bancorporation Reports 2010 Fourth Quarter Results

SALT LAKE CITY, Jan. 24, 2011 /PRNewswire/ -- Zions Bancorporation (Nasdaq: ZION) ("Zions" or "the Company") today reported a fourth quarter net loss applicable to common shareholders of $110.3 million or $0.62 per diluted share, compared to a net loss of $80.5 million or $0.47 per diluted share for the third quarter of 2010. Excluding the noncash effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans, the net loss was $44.1 million or $0.25 per diluted share for the fourth quarter and $51.2 million or $0.30 per diluted share for the third quarter.

Fourth Quarter 2010 Highlights

• Classified loans fell 23% compared to the third quarter, after falling 9% from the second quarter.
• Nonperforming lending-related assets continued to decline, down 20% to $1.83 billion from $2.29 billion in the third quarter.
• The net interest margin declined to 3.49% from 3.84% in the third quarter, primarily due to the larger amount of subordinated debt conversion this quarter. The core net interest margin increased to 4.07% compared to 4.03% in the third quarter.
• The Company reduced its credit risk profile, as construction and land development loans decreased $0.6 billion ($2.0 billion from a year ago). Commercial and industrial loans increased modestly.
• The estimated Tier 1 common to risk-weighted assets ratio improved to 9.08% from 8.66% in the third quarter.

"We are optimistic as we finish 2010 and begin 2011. We are particularly encouraged by the strong effort made during the fourth quarter to resolve more than a billion dollars of classified loans, the vast majority of which experienced favorable resolutions," said Harris H. Simmons, chairman and chief executive officer. Mr. Simmons continued, "We are also sanguine about the declining rate of new inflows into nonaccrual and classified loan categories; in fact, classified loan inflows have declined more than 70% from the peak quarterly rate. Our higher-risk construction portfolio declined significantly during 2010, while business lending balances showed modest signs of growth in the fourth quarter." Mr. Simmons concluded, "We are honored to be recognized again by Greenwich Associates as one of the premier banking franchises in the country, and the only bank in the country to achieve "Excellent" status in all middle-market treasury management categories."

Asset Quality

Classified loans (1) decreased 23% to $3.4 billion at December 31, 2010 from $4.4 billion at September 30, 2010, which was down 9% from $4.9 billion at June 30, 2010. Classified loan balances have now declined for three straight quarters and are down cumulatively $1.8 billion from their peak in the first quarter of 2010, a reduction of 34%. Classified loans that are current as to principal and interest were approximately 69-70% of the balance for the last three quarters.

Nonperforming lending-related assets declined 20% to $1,828.3 million at December 31, 2010 from $2,293.1 million at September 30, 2010. Nonaccrual loans declined 21% to $1,528.7 million at December 31, 2010 from $1,936.2 million at September 30, 2010. Nonaccrual loans that are current were approximately 35% of the balance at December 31, 2010. Delinquent loans (accruing loans past due 30-89 days and 90 days or more) declined 22% to $309.4 million at December 31, 2010 from $396.9 million at September 30, 2010. The ratio of nonperforming lending-related assets to net loans and leases and other real estate owned was 4.91% at December 31, 2010 compared to 6.01% at September 30, 2010.

Other real estate owned declined 16.1% to its lowest level in over a year at $299.6 million at December 31, 2010 compared to $356.9 million at September 30, 2010. OREO expense decreased 42.5% to $25.5 million during the fourth quarter of 2010 compared to $44.3 million during the third quarter of 2010.

The provision for loan losses declined to $173.2 million for the fourth quarter of 2010 from $184.7 million for the third quarter of 2010. The allowance for loan losses declined to $1,440.3 million at December 31, 2010 compared to $1,530.0 million at September 30, 2010. As a percentage of net loans and leases, the allowance was 3.92% at December 31, 2010 compared to 4.07% at September 30, 2010. The allowance for credit losses was $1,552.0 million, or 4.22% of net loans and leases at December 31, 2010, compared to $1,627.9 million, or 4.34% at September 30, 2010.

Net loan and lease charge-offs were $250.9 million for the fourth quarter of 2010 compared to $235.7 million for the third quarter of 2010, as the Company successfully resolved a significant portion of classified assets.

Loans

Net loans and leases of $36.7 billion at December 31, 2010 decreased approximately $0.8 billion or 2.1% from $37.5 billion at September 30, 2010. Approximately 80% of the quarterly decrease was in construction and land development loans, furthering the Company's goal of reducing risk; such loans declined by more than 35% during 2010. The Company experienced net loan growth in commercial lending during the fourth quarter of 2010 for the first time since late 2008.

Certain FDIC-supported loans continue to experience better performance than previous estimates. The expectation of higher-than-expected cash flows from this portfolio results in a higher rate of accretion in loan balances and the recognition of additional interest income. The estimated effect on the financial statements of this higher accretion and the corresponding impact on the FDIC indemnification asset are summarized as follows:

Capital Transactions

During the fourth quarter of 2010, the Company increased its Tier 1 capital through common stock equity distribution issuances of 5,580,000 shares for $118.1 million (average price of $21.16). The total issued under the previously announced program during the third and fourth quarters was 9,516,300 shares for $193.5 million (average price of $20.34). Approximately $6.5 million may still be sold under the program. Net of commissions and fees, the fourth quarter issuances added $116.3 million to tangible common equity.

On November 15 and 16, 2010, $151.0 million of convertible subordinated debt was converted into depositary shares each representing a 1/40th interest in a share of the Company's preferred stock. This conversion added 150,972 shares of Series C and 63 shares of Series A to the Company's preferred stock. As previously disclosed, accelerated discount amortization on the converted debt increased interest expense by a pretax noncash amount of approximately $73.3 million compared to $27.5 million during the third quarter. Preferred stock dividends increased $4.9 million during the fourth quarter due to the increased number of preferred shares.  

The estimated Tier 1 common to risk-weighted assets ratio was 9.08% at December 31, 2010 compared to 8.66% at September 30, 2010.

Deposits

Average total deposits for the fourth quarter of 2010 decreased $0.5 billion or 1.2% to $41.2 billion compared to $41.7 billion for the third quarter of 2010, as the Company continued its efforts to reduce excess funding. Gross loans were 90.1% of total deposits at December 31, 2010, compared to 96.4% at December 31, 2009. Average noninterest-bearing demand deposits for the fourth quarter of 2010 decreased $0.2 billion or 1.3% to $13.6 billion compared to $13.8 billion for the third quarter of 2010.

Net Interest Income

The net interest margin decreased to 3.49% in the fourth quarter of 2010 compared to 3.84% in the third quarter of 2010, primarily due to the accelerated discount amortization when debt holders exercised their options to convert to preferred stock (62 bp, compared to 23 bp in the third quarter). The core net interest margin, adjusted for the amortization on convertible subordinated debt and accretion on acquired loans, was 4.07% in the fourth quarter compared to 4.03% in the third quarter, reflecting continued reduction in deposit pricing. The Company expects to report on or about February 15, 2011 the conversion amount for the first quarter of 2011.

Investment Securities

During the fourth quarter of 2010, the Company recognized credit-related net impairment losses on CDOs of $12.3 million or $0.04 per diluted share, compared to $23.7 million or $0.08 per diluted share during the third quarter of 2010, and $99.3 million or $0.44 per diluted share during the fourth quarter of 2009. The impairment included $5.3 million for bank and insurance trust preferred CDOs in the fourth quarter of 2010, $20.9 million in the third quarter of 2010, and $86.8 million in the fourth quarter of 2009.

CDOs for which the underlying collateral is predominantly bank trust preferred securities comprised $2.1 billion of the $2.6 billion par amount of the bank and insurance CDO portfolio at December 31, 2010. The following table shows the changes in carrying value at December 31, 2010 compared to September 30, 2010 according to original ratings:

Noninterest Income and Noninterest Expense

Noninterest income for the fourth quarter of 2010 was relatively stable at $113.2 million compared to $110.2 million for the third quarter of 2010. Noninterest expense for the fourth quarter of 2010 was $443.4 million compared to $456.0 million for the third quarter of 2010. Primary changes in noninterest expense include a $12.7 million increase in the provision for unfunded lending commitments, a decrease in OREO expense of $18.8 million, and the recognition in the third quarter of $11.6 million of structuring costs for the total return swap executed during the third quarter of 2010.

Conference Call

Zions will host a conference call to discuss these fourth quarter results at 5:30 p.m. ET this afternoon (January 24, 2011). Media representatives, analysts and the public are invited to listen to this discussion by calling 1-253-237-1247 and entering the passcode 31760484, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation website at www.zionsbancorporation.com. A replay of the call will be available from approximately 7:30 p.m. ET on Monday, January 24, 2011, until midnight ET on Monday, January 31, 2011, by dialing 1-706-645-9291 and entering the passcode 31760484. The webcast of the conference call will also be archived and available for 30 days.

About Zions Bancorporation

Zions Bancorporation is one of the nation's premier financial services companies, consisting of a collection of great banks in select high growth markets. Zions operates its banking businesses under local management teams and community identities through approximately 500 offices in ten Western and Southwestern states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington. The Company is a national leader in Small Business Administration lending and public finance advisory services. In addition, Zions is included in the S&P 500 and NASDAQ Financial 100 indices. Investor information and links to subsidiary banks can be accessed at www.zionsbancorporation.com.

Forward-Looking Information

Statements in this press release that are based on other than historical data or that express the Company's expectations regarding future events or determinations 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 or determinations. These forward-looking statements are not guarantees of future performance or determinations, 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 this press release. Factors that might cause such differences include, but are not limited to: the Company's ability to successfully execute its business plans and achieve its objectives; changes in general economic and financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its operations, including changes in securities markets and valuations in structured securities and other assets; changes in governmental policies and programs resulting from general economic and financial market conditions; changes in interest and funding rates; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; increased competitive challenges and expanding product and pricing pressures among financial institutions; legislation or regulatory changes which adversely affect the Company's operations or business (including the Dodd-Frank Wall Street Reform and Consumer Protection Act); and changes in accounting policies, procedures or determinations as may be required by the Financial Accounting Standards Board or other regulatory agencies.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Zions Bancorporation's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and available at the SEC's Internet site (http://www.sec.gov).

Except as required by law, 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.

(1)  Classified loans referenced in this document are defined by internal Company loan credit ratings and generally have well defined credit weaknesses where the bank may sustain some loss if the deficiencies are not corrected.

This Press Release presents the “net loss excluding the effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans” and the “core net interest margin,” both of which exclude the effects of the (1) discount amortization on convertible subordinated debt; (2) accelerated discount amortization on convertible subordinated debt; and (3) additional accretion of interest income on acquired loans based on increased projected cash flows, (hereinafter collectively referred to as the “amortization and accretion adjustments”). These amortization and accretion adjustments are included in financial results presented in accordance with generally accepted accounting principles (“GAAP”). Management considers these amortization and accretion adjustments to be relevant to ongoing operating results.

The Company believes the exclusion of these amortization and accretion adjustments to present results of operations provides a meaningful base for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the operating results of the Company and predicting future performance. As a non-GAAP financial measure, the exclusion of these amortization and accretion adjustments by management and the Board of Directors facilitates the ability to assess the performance of the Company’s business for the following purposes:

• Evaluation of bank reporting segment performance
• Presentations of Company performance to investors

The Company believes that presenting results of operations excluding these amortization and accretion adjustments will permit investors to assess the performance of the Company on the same basis as that applied by management and the Board of Directors.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.  

SOURCE Zions Bancorporation