Zions Bancorporation Reports Earnings of $0.14 Per Diluted Common Share for First Quarter 2012

SALT LAKE CITY, April 23, 2012 /PRNewswire/ -- Zions Bancorporation (NASDAQ: ZION) ("Zions" or "the Company") today reported first quarter net earnings applicable to common shareholders of $25.5 million or $0.14 per diluted common share, compared to $44.4 million or $0.24 per diluted share for the fourth quarter of 2011. Adjusted for the noncash effects of the discount amortization on conversion of subordinated debt and additional accretion (net of expense) on acquired loans ($15.0 million, $0.08 per share), and the accelerated amortization of discount on the $700 million redemption of Troubled Asset Relief Program ("TARP") preferred stock ($19.6 million, $0.11 per share) in the first quarter, net earnings were $60.1 million or $0.33 per diluted share for the first quarter of 2012, compared to $53.5 million or $0.30 per diluted share for the fourth quarter of 2011.

First Quarter 2012 Highlights

• Net charge-offs decreased 43% to $55 million, compared to a decrease of 7% to $95 million in the fourth quarter.
• Nonaccrual loans decreased 4% to $872 million, compared to a decrease of 15% to $910 million in the fourth quarter.
• The tangible common equity ratio increased to 6.89% at March 31, 2012, compared to 6.77% at December 31, 2011.
• Net interest income decreased 4.2% to $442 million from $462 million in the fourth quarter. Core net interest income decreased 1.9% to $453 million from $461 million in the fourth quarter. The core net interest margin decreased 5 basis points to 3.81% from 3.86% in the fourth quarter.
• Loans and leases, excluding FDIC-supported loans, were $35.9 billion at March 31, 2012, or approximately $490 million lower than $36.4 billion at December 31, 2011; average loans and leases, excluding FDIC-supported loans, were essentially unchanged at $36.1 billion for the first quarter of 2012, compared to the fourth quarter of 2011.

"We are pleased with the continued improvement in underlying credit trends, as reflected in a significantly lower level of loan losses and other credit-related costs than in recent quarters – a trend we foresee continuing," said Harris H. Simmons, chairman and chief executive officer. "We were also pleased to accomplish the redemption of $700 million of the U.S. Treasury's TARP investment during the quarter," continued Mr. Simmons. "At the same time, the combination of sluggish loan demand and very low interest rates continues to impede growth in our largest source of revenue, net interest income."

Debt and Shareholders' Equity

The Federal Reserve did not object to the capital actions contained in the Company's Capital Plan submitted under the Federal Reserve's 2012 Capital Plan Review. Pursuant to that plan, the Company repaid $700 million of TARP preferred stock on March 28, 2012, and currently expects to repay the remaining $700 million in the second half of the year.

On March 27, 2012, the Company issued $300 million of 4.5% senior notes due on March 27, 2017. The notes were sold at a price of 94.25% through an online modified Dutch auction administered by Zions Direct. Net proceeds to the Company, after commissions and fees, were $280.5 million.

Net of the interest cost on the previously mentioned debt, the $700 million redemption of TARP preferred stock in the first quarter is expected to benefit future net earnings applicable to common shareholders by approximately $0.19 per share on an annualized basis.

Effective March 15, 2012, approximately $29.8 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 29,404 shares of Series C and 370 shares of Series A to the Company's preferred stock. Accelerated discount amortization on the converted debt increased interest expense by a pretax noncash amount of approximately $12.2 million ($9.9 million after-tax) in the first quarter of 2012, compared to $5.8 million ($4.7 million after-tax) in the fourth quarter of 2011.

On April 19, 2012, the Company reported that holders of approximately $50.2 million of subordinated convertible notes elected to convert their debt into depositary shares of the Company's preferred stock. This anticipated conversion is expected to increase interest expense in the second quarter of 2012 due to the accelerated discount amortization on the converted debt by an estimated noncash amount of $16.2 million pretax ($13.2 million after-tax).

The estimated Tier 1 common to risk-weighted assets ratio was 9.70% at March 31, 2012, compared to 9.57% at December 31, 2011.

Asset Quality

Net loan and lease charge-offs decreased 43% to $55 million for the first quarter of 2012, compared to $95 million for the fourth quarter of 2011. Net charge-offs declined primarily in commercial real estate and owner occupied real estate-secured commercial loans.

Nonperforming lending-related assets declined approximately 3% to $1.0 billion at March 31, 2012 from $1.1 billion at December 31, 2011. Nonaccrual loans declined approximately 4% to $872 million at March 31, 2012 from $910 million at December 31, 2011. Additions to nonaccrual loans were $233 million during the first quarter of 2012, compared to $209 million during the fourth quarter of 2011. Nonaccrual loans that are current as to principal and interest were approximately 41% of the balance at March 31, 2012 and at December 31, 2011. The ratio of nonperforming lending-related assets to loans and leases and other real estate owned decreased to 2.79% at March 31, 2012, compared to 2.83% at December 31, 2011.

Classified loans remained approximately the same at $2.1 billion at March 31, 2012, compared to a decrease of 13% to $2.1 billion at December 31, 2011. Approximately 73% of classified loans were current as to principal and interest for the first quarter of 2012, compared to 72% for the fourth quarter of 2011. Additions to classified loans increased to $503 million during the first quarter of 2012, compared to $330 million during the fourth quarter of 2011. Additions would have been essentially unchanged compared to the prior quarter, except for a change in grading methodology in our National Real Estate Group. This change had the effect of downgrading to classified status approximately $175 million of performing loans during the quarter. 

The provision for loan losses was $15.7 million for the first quarter of 2012, compared to a negative provision of $(1.5) million for the fourth quarter of 2011.

The allowance for credit losses was $1.1 billion, or 3.03% of loans and leases at March 31, 2012, compared to $1.2 billion, or 3.10% of loans and leases at December 31, 2011. The allowance for credit losses was 127% of nonaccrual loans at both March 31, 2012 and December 31, 2011.

Loans

Loans and leases, excluding FDIC-supported loans, were $35.9 billion at March 31, 2012, or approximately $490 million lower than $36.4 billion at December 31, 2011; substantially all of the decline occurred during the first two months of the first quarter. Average loans and leases, excluding FDIC-supported loans, were $36.1 billion for the first quarter of 2012, or essentially the same as the fourth quarter of 2011, which had increased $158 million compared to the previous quarter.

Deposits

Average total deposits for the first quarter of 2012 increased $170 million or 0.4% to $42.4 billion compared to $42.2 billion for the fourth quarter of 2011. The increase resulted primarily from a higher level of average noninterest-bearing demand deposits for the first quarter of 2012, which were $15.7 billion compared to $15.5 billion for the fourth quarter of 2011. The ratio of loans to deposits was 84.9% at March 31, 2012, compared to 86.6% at December 31, 2011.

Net Interest Income

Net interest income decreased 4.2% to $442 million for the first quarter of 2012, compared to $462 million for the fourth quarter of 2011. The decrease was primarily due to rate resets on older vintage longer-term loans and accelerated discount amortization on the larger amount of subordinated debt that converted to preferred stock compared to the previous quarter. Core net interest income, adjusted for discount amortization on convertible subordinated debt and accretion on acquired loans, was approximately $453 million for the first quarter of 2012, compared to $461 million for the fourth quarter of 2011. The net interest margin decreased 13 basis points to 3.73% in the first quarter of 2012, compared to 3.86% in the fourth quarter of 2011. The core net interest margin was 3.81% in the first quarter, compared to 3.86% in the fourth quarter. The decrease in the core net interest margin was primarily due to reduced loan yields.

Investment Securities

During the first quarter of 2012, the Company recognized credit-related other-than-temporary impairment ("OTTI") on collateralized debt obligations ("CDOs") of $10.2 million or $0.03 per diluted share, compared to $12.1 million or $0.04 per diluted share during the fourth quarter of 2011. Approximately a third of the OTTI this quarter resulted from prepayments of trust preferred securities by issuing banks in our CDO pools. This had the effect of reducing future cash flows to certain junior CDO tranches, causing OTTI, while providing more immediate cash to senior tranches, resulting in improved balances in accumulated other comprehensive income. The remaining portion of OTTI is attributable to credit deterioration at a small number of banks. There were fewer bank failures in the first quarter of 2012 than in prior quarters, and reperformance of deferring banks continues to be a favorable trend.

The following table stratifies the CDOs into performing tranches without credit impairment and nonperforming tranches at March 31, 2012:

Noninterest Income

Noninterest income for the first quarter of 2012 was $107.0 million, compared to $98.3 million for the fourth quarter of 2011. The increase was primarily due to unrealized gains on nonmarketable equity securities. Other service charges, commissions and fees declined approximately $4.3 million primarily as a result of lower loan production and lower fee income on customer swaps.

Noninterest Expense

Noninterest expense for the first quarter of 2012 was $392.4 million compared to $425.0 million for the fourth quarter of 2011. Significant decreases from the fourth quarter related to credit costs, including the provision for unfunded lending commitments, other real estate expense, and credit-related expense. Salaries and employee benefits increased primarily due to increased payroll taxes.

Conference Call

Zions will host a conference call to discuss these first quarter results at 5:30 p.m. ET this afternoon (April 23, 2012). Media representatives, analysts and the public are invited to listen to this discussion by calling 253-237-1247 (domestic and international) and entering the passcode 66010698, 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, April 23, 2012, until midnight ET on Monday, April 30, 2012, by dialing 855-859-2056 (domestic and international) and entering the passcode 66010698. 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 Western markets. Zions operates its banking businesses under local management teams and community identities through approximately 500 offices in 10 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 private and governmental legal actions or changes in existing private and governmental legal actions; 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.

This Press Release presents the following non-GAAP financial measures: 1. Net earnings excluding the effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans, and 2. Core net interest income/net interest margin. These non-GAAP financial measures exclude the effects of the following adjustments: (i) periodic discount amortization on convertible subordinated debt; (ii) accelerated discount amortization on convertible subordinated debt which has been converted; and (iii) additional accretion of interest income on acquired loans based on increased projected cash flows (net of related expense in 1.).

The identified adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are included where applicable in financial results presented in accordance with GAAP. The Company considers these adjustments to be relevant to ongoing operating results.

The Company believes that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period and company-to-company comparisons, which will assist investors and analysts in analyzing the operating results of the Company and in predicting future performance. These non-GAAP financial measures are used by management and the Board of Directors to assess the performance of the Company's business for evaluating bank reporting segment performance, for presentations of Company performance to investors, and for other reasons as may be requested by investors and analysts. The Company further believes that presenting these non-GAAP financial measures will permit investors and analysts 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 these non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool and should not be considered in isolation or as a substitute for analyses of results reported under GAAP.

SOURCE Zions Bancorporation