Zions Bancorporation Reports Earnings of $0.24 Per Diluted Common Share for Fourth Quarter 2011

SALT LAKE CITY, Jan. 23, 2012 /PRNewswire/ -- Zions Bancorporation (Nasdaq: ZION) ("Zions" or "the Company") today reported fourth quarter net earnings applicable to common shareholders of $44.4 million or $0.24 per diluted common share, compared to $65.2 million or $0.35 per diluted share for the third quarter of 2011. Excluding the noncash effects of the discount amortization on convertible subordinated debt and additional accretion (net of expense) on acquired loans, net earnings were $53.5 million or $0.30 per diluted share for the fourth quarter of 2011, compared to $74.8 million or $0.40 per diluted share for the third quarter of 2011.

Fourth Quarter 2011 Highlights

• Nonaccrual loans decreased 15% to $0.9 billion, compared to a decrease of 16% to $1.1 billion in the third quarter.  
• Other real estate owned decreased 25% to $153 million, compared to a decrease of 15% to $203 million in the third quarter.
• Net charge-offs decreased 7% to $95 million, compared to a decrease of 10% to $102 million in the third quarter.
• Average loans and leases, excluding FDIC-supported loans, increased 0.4% or $158 million to $36.1 billion, compared to a $4 million increase in the third quarter.
• The estimated Tier 1 common to risk-weighted assets ratio was 9.55% compared to 9.53% in the third quarter.
• Net interest income decreased 1.8% to $462 million from $471 million in the third quarter. The net interest margin decreased 13 basis points to 3.86% from 3.99% in the third quarter. The increase in average cash-related balances accounted for 8 basis points of the decrease.
• Average total deposits increased $804 million, compared to an increase of $512 million in the third quarter. Average cash-related balances increased $1.1 billion, compared to an increase of $726 million in the third quarter.  

"We are again pleased with the significant improvement in credit quality this quarter, which we expect to continue and to result in lower net charge-offs in 2012," said Harris H. Simmons, chairman and chief executive officer. Mr. Simmons continued, "We also are pleased with the somewhat stronger loan growth this quarter and with signs of strengthening loan pipelines, particularly for business loans. Revenue growth was a challenge for us, as it was for the whole industry, in 2011." Mr. Simmons concluded, "However, we see signs of stabilizing loan pricing, which with continued loan growth and improving credit quality should lead to improved results in 2012."

Asset Quality

Nonperforming lending-related assets declined approximately 16% to $1.1 billion at December 31, 2011 from $1.3 billion at September 30, 2011. Nonaccrual loans declined approximately 15% to $0.9 billion at December 31, 2011 from $1.1 billion at September 30, 2011. Additions to nonaccrual loans declined to $209 million during the fourth quarter of 2011, compared to $233 million during the third quarter of 2011. Nonaccrual loans that are current as to principal and interest were approximately 41% of the balance at December 31, 2011, compared to 39% at September 30, 2011. Other real estate owned declined approximately 25% to $153 million at December 31, 2011, compared to $203 million at September 30, 2011.

The ratio of nonperforming lending-related assets to net loans and leases and other real estate owned decreased to 2.83% at December 31, 2011, compared to 3.43% at September 30, 2011.

Classified loans decreased approximately 13% to $2.1 billion at December 31, 2011, compared to 12% to $2.4 billion at September 30, 2011. Additions to classified loans decreased to $330 million during the fourth quarter of 2011, compared to $357 million during the third quarter of 2011. Approximately 72% of classified loans were current as to principal and interest for the fourth quarter of 2011, unchanged from the third quarter of 2011.  

Net loan and lease charge-offs were $95 million for the fourth quarter of 2011, compared to $102 million for the third quarter of 2011. Net charge-offs declined primarily in commercial and industrial loans.  

The Company had a negative provision for loan losses, $(1.5) million, for the fourth quarter of 2011, compared to a provision of $14.6 million for the third quarter of 2011. The decline mainly resulted from improvement in the credit quality indicators previously discussed. The allowance for credit losses was $1.2 billion, or 3.10% of net loans and leases at December 31, 2011, compared to $1.3 billion, or 3.40% of net loans and leases at September 30, 2011. The allowance for credit losses was 127% of nonaccrual loans at December 31, 2011, compared to 117% at September 30, 2011, and equaled approximately 3.0 years' coverage of annualized net charge-offs at December 31, 2011.

Loans

Average loans and leases, excluding FDIC supported loans, increased $158 million or 0.4% to $36.1 billion during the fourth quarter of 2011, compared to an increase of $4 million during the third quarter of 2011. Net increases in commercial and industrial loans, primarily at Amegy Bank and Zions Bank, along with net increases in term commercial real estate primarily at California Bank & Trust, were offset by decreases in construction and land development, commercial owner occupied, and FDIC-supported loans. FDIC-supported loans in the aggregate continue to perform better than originally forecasted.

Deposits

Average total deposits for the fourth quarter of 2011 increased $804 million or 1.9% to $42.2 billion compared to $41.4 billion for the third quarter of 2011. The increase resulted primarily from a higher level of average noninterest-bearing demand deposits for the fourth quarter of 2011 which were $15.5 billion, compared to $14.8 billion for the third quarter of 2011. The large majority of the increase occurred in commercial accounts at Amegy Bank. The ratio of loans to deposits was 86.9% at December 31, 2011, compared to 89.1% at September 30, 2011.

Net Interest Income

Net interest income decreased 1.8% to $462 million for the fourth quarter of 2011, compared to $471 million for the third quarter of 2011; the decrease was primarily due to rate resets on older vintage longer-term loans. The net interest margin decreased 13 basis points to 3.86% in the fourth quarter of 2011, compared to 3.99% in the third quarter of 2011; approximately 8 basis points of the decline was attributable to an increase in average cash-related balances to $6.6 billion for the fourth quarter, compared to $5.5 billion for the third quarter.

The calculations of core net interest income and the core net interest margin adjust for discount amortization on convertible subordinated debt and accretion on acquired loans. For the fourth quarter of 2011, these adjustments substantially offset each other as core net interest income at $461 million was substantially the same as net interest income, and the core net interest margin was the same as the net interest margin.

Investment Securities

During the fourth quarter of 2011, the Company recognized credit-related OTTI on CDOs of $12.1 million or $0.04 per diluted share, compared to $13.3 million or $0.04 per diluted share during the third quarter of 2011. The OTTI this quarter included $4.3 million from a homebuilder bankruptcy within the CDO pool and $4.6 million that resulted primarily from assumption increases in the medium-term PDs of the best performing banks. In its CDO portfolio, the Company had exposure to 24 of the 92 bank failures that occurred in 2011. At the time of default, the Company's weighted average PD for the 24 failed banks was 96%.

The following table shows the changes in carrying value for CDOs at December 31, 2011 compared to September 30, 2011:

Noninterest Income

Noninterest income for the fourth quarter of 2011 was $98.3 million, compared to $121.0 million in the third quarter of 2011. The decrease included an $8 million reduction, partially offset by other items, in other service charges, commissions and fees due to the impact of the Durbin amendment. Other decreases in noninterest income during the quarter primarily resulted from the recognition in the third quarter of both the $13 million fixed income securities gains and the $5.5 million equity securities gain from the sale of BServ, Inc. (dba BankServ) stock.

Noninterest Expense

Noninterest expense for the fourth quarter of 2011 was $425.0 million compared to $409.0 million for the third quarter of 2011. The increase in salaries and employee benefits primarily resulted from one-time accrual adjustments of approximately $6 million for retirement-related benefits. Excluding employee benefits, salaries and bonuses in the fourth quarter of 2011 were lower than the third quarter of 2011 and the fourth quarter of 2010. Other significant increases included the provision for unfunded lending commitments, legal and professional services, and other related accruals. Notable decreases included other real estate and credit related expenses.

Shareholders' Equity

Effective November 16, 2011, approximately $15.0 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 14,957 shares of Series C to the Company's preferred stock. Accelerated discount amortization on the converted debt increased interest expense by a pretax noncash amount of approximately $5.8 million ($4.7 million after-tax) in the fourth quarter of 2011, compared to $7.5 million ($6.1 million after-tax) in the third quarter of 2011.  

The estimated Tier 1 common to risk-weighted assets ratio was 9.55% at December 31, 2011, compared to 9.53% at September 30, 2011.

Conference Call

Zions will host a conference call to discuss these fourth quarter results at 5:30 p.m. ET this afternoon (January 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 36356880, 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 23, 2012, until midnight ET on Monday, January 30, 2012, by dialing 404-537-3406 (domestic and international) and entering the passcode 36356880. 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.