Zions Bancorporation Reports Earnings of $0.16 Per Diluted Common Share for Second Quarter 2011

SALT LAKE CITY, July 18, 2011 /PRNewswire/ -- Zions Bancorporation (Nasdaq: ZION) ("Zions" or "the Company") today reported second quarter net earnings applicable to common shareholders of $29.0 million or $0.16 per diluted common share, compared to $14.8 million or $0.08 per diluted share for the first quarter of 2011. Excluding the noncash effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans, net earnings were $82.4 million or $0.45 per diluted share for the second quarter of 2011 compared to $52.6 million or $0.29 per diluted share for the first quarter of 2011.

Second Quarter 2011 Highlights

• Net loans and leases grew $278 million compared to a decline of $202 million during the first quarter.
• Major credit indicators improved, thus the provision for loan losses declined to $1.3 million from $60 million in the first quarter.
• Net charge-offs declined 20% to $113 million compared to $141 million in the first quarter.
• The net interest margin decreased to 3.62% from 3.76% in the first quarter, due to the higher level of subordinated debt conversions this quarter. The core net interest margin was stable at 4.07% compared to 4.06% in the first quarter.
• The estimated Tier 1 common to risk-weighted assets ratio was 9.32%, unchanged from the first quarter.

"We are pleased with the progress made in the second quarter. We saw continued broad-based improvement in credit quality metrics, and we saw modest growth in our loan portfolio, with commercial and consumer loan growth more than offsetting a modest decline in commercial real estate loans," said Harris H. Simmons, chairman and chief executive officer. Mr. Simmons continued, "We experienced continued strengthening of our funding mix, with average checking deposits increasing nearly $500 million during the quarter." Mr. Simmons concluded, "We are sanguine about our opportunities – we expect profitability to continue to strengthen and note that our relatively strong capital and funding ratios position us to take advantage of lending opportunities as they arise."

Loans

Net loans and leases of $36.82 billion at June 30, 2011 increased approximately $278 million or 0.8% from $36.55 billion at March 31, 2011, compared to a $202 million decline during the first quarter of 2011. The strongest growth was in the energy portfolio at Amegy and in residential mortgages in selected markets.

Certain FDIC-supported loans continue to experience better performance than previously forecasted. The expectation of higher cash flows from this portfolio exceeding original forecasts 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:

Asset Quality

Net loan and lease charge-offs were $113 million for the second quarter of 2011 compared to $141 million for the first quarter of 2011. Net charge-offs declined in nearly all major loan portfolio segments across all subsidiary banks.  

Classified loans decreased approximately 12% to $2.68 billion at June 30, 2011 compared to $3.05 billion at March 31, 2011, which were down 11% from the previous quarter. Classified loans that are current as to principal and interest were approximately 69% for the second quarter of 2011 compared to 68% for the first quarter of 2011.  

Nonperforming lending-related assets declined approximately 10% to $1.51 billion at June 30, 2011 from $1.68 billion at March 31, 2011. Additions to nonperforming lending-related assets declined to $263 million during the second quarter of 2011 compared to $337 million during the first quarter of 2011. Nonaccrual loans declined approximately 10% to $1.27 billion at June 30, 2011 from $1.41 billion at March 31, 2011. Nonaccrual loans that are current were approximately 38% of the balance at June 30, 2011 compared to 34% at March 31, 2011. Accruing loans past due 30 days or more declined approximately 18% to $301 million at June 30, 2011 compared to $366 million at March 31, 2011. Other real estate owned declined approximately 11% to $239 million at June 30, 2011 compared to $269 million at March 31, 2011.

The ratio of nonperforming lending-related assets to net loans and leases and other real estate owned was 4.06% at June 30, 2011 compared to 4.54% at March 31, 2011.

The provision for loan losses declined to $1.3 million for the second quarter of 2011 from $60 million for the first quarter of 2011. The allowance for loan losses declined to $1.24 billion at June 30, 2011 compared to $1.35 billion at March 31, 2011. As a percentage of net loans and leases, the allowance was 3.36% at June 30, 2011 compared to 3.69% at March 31, 2011. The allowance for credit losses was $1.34 billion, or 3.63% of net loans and leases at June 30, 2011, compared to $1.45 billion, or 3.97% of net loans and leases at March 31, 2011.

Capital Transactions

Effective May 16, 2011, $138.5 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 138,269 shares of Series C and 200 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 $61.4 million ($50.0 million after-tax) in the second quarter of 2011, compared to $41.0 million ($33.3 million after-tax) in the first quarter of 2011.  

The estimated Tier 1 common to risk-weighted assets ratio was 9.32% at June 30, 2011, unchanged from March 31, 2011.

Deposits

Average total deposits for the second quarter of 2011 increased $296 million or 0.7% to $40.88 billion compared to $40.59 billion for the first quarter of 2011. The increase was primarily caused by the higher level of average noninterest-bearing demand deposits for the second quarter of 2011, which was $14.16 billion compared to $13.67 billion for the first quarter of 2011. The ratio of loans to deposits was 89.7% at June 30, 2011 compared to 90.3% at March 31, 2011.

Net Interest Margin

The net interest margin decreased to 3.62% in the second quarter of 2011 compared to 3.76% in the first quarter of 2011, primarily due to the higher level of accelerated discount amortization (53 bp compared to 36 bp in the first quarter). The core net interest margin, adjusted for the amortization on convertible subordinated debt and accretion on acquired loans, was 4.07% in the second quarter compared to 4.06% in the first quarter. Cash and investments in interest-bearing deposits increased to $5.96 billion at June 30, 2011 compared to $5.64 billion at March 31, 2011, which had an adverse effect on the net interest margin.

Investment Securities

During the second quarter of 2011, the Company recognized credit-related net impairment losses on CDOs of $5.2 million or $0.02 per diluted share, compared to $3.1 million or $0.01 per diluted share during the first quarter of 2011. CDOs for which the underlying collateral is predominantly bank trust preferred securities comprised $1.64 billion of the $2.26 billion in amortized cost of the CDO portfolio at June 30, 2011. The following table shows the changes in carrying value for bank and insurance trust preferred CDOs at June 30, 2011 compared to March 31, 2011 according to original ratings:

For original AAA-rated securities, limited trading activity continued this quarter at generally higher prices than seen last quarter. For original A- and BBB-rated securities, changes in CDO valuations were attributable to an increase in the limited trading activity, which provided additional market-based information to estimate fair value. During the second quarter, the Company sold $95.4 million in amortized cost ($185.2 million par amount) of original AAA-rated CDO securities for a $4.1 million loss. The aggregate sale price exceeded modeled fair value. The sales included bank and insurance CDO securities with $69.1 million in amortized cost ($120 million par amount) sold at a gain.  

Noninterest Income and Noninterest Expense

Noninterest income for the second quarter of 2011 was $128.3 million compared to $134.1 million in the first quarter of 2011. The decline in the second quarter of 2011 compared to the first quarter primarily resulted from the $18.9 million gain on FDIC-supported loans recognized in the first quarter. The more significant increases in the second quarter compared to the first quarter were in dividends and other investment income, which included several miscellaneous gains, loan sales and servicing income, and fair value and nonhedge derivative income.

Noninterest expense for the second quarter of 2011 was $416.3 million compared to $408.4 million for the first quarter of 2011. Significant changes from the first quarter included increased salaries and employee benefits from share-based awards and adjustments to benefit-related accruals, an increased expense impact from the change in the negative provision for unfunded lending commitments, and increased other noninterest expense from reductions to the FDIC indemnification asset. These changes were offset by decreases in OREO expense and FDIC premiums. The reduced level of FDIC premiums resulted from changes in the FDIC's assessment formula.  

Impact of Durbin Amendment

On June 29, 2011, the Federal Reserve enacted the Durbin Amendment of The Dodd-Frank Act which will limit debit card interchange fees charged by banks. The Company estimates the annual negative impact on bankcard fees to be approximately $35 million to $40 million pretax, beginning in the fourth quarter of 2011, before the impact of any offsetting pricing actions on deposit accounts or other products and services.

Conference Call

Zions will host a conference call to discuss these second quarter results at 5:30 p.m. ET this afternoon (July 18, 2011). 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 78952461, 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, July 18, 2011, until midnight ET on Monday, July 25, 2011, by dialing 706-645-9291 (domestic and international) and entering the passcode 78952461. 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 two 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 margin. Both of 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 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 reported under GAAP.

SOURCE Zions Bancorporation