Zions Bancorporation Reports Earnings of $0.08 per Diluted Common Share for First Quarter 2011

SALT LAKE CITY, April 18, 2011 /PRNewswire/ -- Zions Bancorporation (Nasdaq: ZION) ("Zions" or "the Company") today reported first quarter net earnings applicable to common shareholders of $14.8 million or $0.08 per diluted common share, compared to a net loss of $(110.3) million or $(0.62) per diluted share for the fourth quarter of 2010. Excluding the noncash effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans, net earnings were $52.6 million or $0.29 per diluted share for the first quarter of 2011 compared to a net loss of $(44.1) million or $(0.25) per diluted share for the fourth quarter of 2010.  

First Quarter 2011 Highlights

• Net charge-offs declined 44% to $141 million compared to $251 million in the fourth quarter.

• The provision for loan losses declined 65% to $60 million from $173 million in the fourth quarter.

• Other noninterest income was favorably impacted by an $18.9 million pretax gain, or $0.06 per diluted share, for amounts received from the FDIC on certain acquired loans recently determined to be covered by the FDIC loss share agreement.

• The net interest margin increased to 3.76% from 3.49% in the fourth quarter, due to the lower level of subordinated debt conversions this quarter. The core net interest margin was stable at 4.06% compared to 4.07% in the fourth quarter.

• Strengthening growth in commercial, term commercial real estate, and consumer loans of $401 million offset a significant portion of the continued reduction in construction and land development loans of $544 million.  

• The estimated Tier 1 common to risk-weighted assets ratio improved to 9.27% from 8.95% in the fourth quarter.

"During the first quarter we were especially pleased to see a substantial moderation of loan losses and continued improvement in credit quality, which allowed for a material reduction in our provision for loan losses," said Harris H. Simmons, chairman and chief executive officer. Mr. Simmons continued, "We believe these improved credit measures and trends are sustainable, and will lead to continued operating profitability through the remainder of the year." Mr. Simmons concluded, "We look forward to further credit improvement, increased loan volumes, and the eventual rationalization of our capital structure through the refinancing of higher cost preferred stock and subordinated debt, all of which should lead to material improvement in our earnings levels in future periods."

Asset Quality

Net loan and lease charge-offs were $141.5 million for the first quarter of 2011 compared to $250.9 million for the fourth quarter of 2010. Net charge-offs significantly declined in each major loan portfolio segment and most geographies.  

Classified loans decreased 11% to $3.0 billion at March 31, 2011 compared to $3.4 billion at December 31, 2010, which was down 23% from the previous quarter. Classified loans that are current as to principal and interest were approximately 68% for the first quarter of 2011 compared to 69% for the fourth quarter of 2010.  

Nonperforming lending-related assets declined 8.0% to $1,681.7 million at March 31, 2011 from $1,828.3 million at December 31, 2010. Additions to nonperforming lending-related assets declined to $337 million during the first quarter of 2011 compared to $371 million during the fourth quarter of 2010. Nonaccrual loans declined 7.6% to $1,412.8 million at March 31, 2011 from $1,528.7 million at December 31, 2010. Nonaccrual loans that are current were approximately 34% of the balance at March 31, 2011 compared to 35% at December 31, 2010. Delinquent loans (accruing loans past due 30-89 days and 90 days or more) declined 15.3% to $365.6 million at March 31, 2011 compared to $431.9 million at December 31, 2010. Other real estate owned declined 10.2% to $268.9 million at March 31, 2011 compared to $299.6 million at December 31, 2010.

The ratio of nonperforming lending-related assets to net loans and leases and other real estate owned was 4.54% at March 31, 2011 compared to 4.91% at December 31, 2010.

The provision for loan losses declined to $60.0 million for the first quarter of 2011 from $173.2 million for the fourth quarter of 2010. The allowance for loan losses declined to $1,349.8 million at March 31, 2011 compared to $1,440.3 million at December 31, 2010. As a percentage of net loans and leases, the allowance was 3.69% at March 31, 2011 compared to 3.92% at December 31, 2010. The allowance for credit losses was $1,452.0 million, or 3.97% of net loans and leases at March 31, 2011, compared to $1,552.0 million, or 4.22%, at December 31, 2010.

Loans

Net loans and leases of $36.5 billion at March 31, 2011 decreased approximately $202 million or 0.5% from $36.7 billion at December 31, 2010, compared to an $802 million decline during the fourth quarter of 2010. Strengthening growth in commercial and consumer loans and continued growth in term commercial real estate loans offset continued reductions in construction and land development loan balances. These loan volume trends were widespread throughout the Company's footprint.

Certain FDIC-supported loans continue to experience better performance than previously forecasted. 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 first quarter of 2011, the Company increased its Tier 1 capital through common stock equity distribution issuances of 1,067,540 shares for $25.5 million (average price of $23.89). These were made under a new program announced February 10, 2011 to sell up to $200 million of common stock, which superseded all prior programs. Net of commissions and fees, these issuances added $25.0 million to tangible common equity.

Effective March 15, 2011, $85.8 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 85,829 shares of Series C and 20 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 $41.0 million ($33.3 million after-tax) in the first quarter of 2011, compared to $73.3 million ($59.9 million after-tax) in the fourth quarter of 2010.  

The estimated Tier 1 common to risk-weighted assets ratio was 9.27% at March 31, 2011 compared to 8.95% at December 31, 2010.

Deposits

Average total deposits for the first quarter of 2011 decreased $0.6 billion or 1.4% to $40.6 billion compared to $41.2 billion for the fourth quarter of 2010. The change reflects primarily a reduction of higher cost time deposits partially offset by an increase in noninterest-bearing demand deposits. Average noninterest-bearing demand deposits for the first quarter of 2011 increased slightly to $13.7 billion compared to $13.6 billion for the fourth quarter of 2010.

Net Interest Margin

The net interest margin increased to 3.76% in the first quarter of 2011 compared to 3.49% in the fourth quarter of 2010, primarily due to the lower level of accelerated discount amortization (36 bp compared to 62 bp in the fourth quarter). The core net interest margin, adjusted for the amortization on convertible subordinated debt and accretion on acquired loans, was 4.06% in the first quarter compared to 4.07% in the fourth quarter.

Investment Securities

During the first quarter of 2011, the Company recognized credit-related net impairment losses on CDOs of $3.1 million or $0.01 per diluted share, compared to $12.3 million or $0.04 per diluted share during the fourth quarter of 2010. CDOs for which the underlying collateral is predominantly bank trust preferred securities comprised $2.1 billion of the $2.9 billion par amount of the CDO portfolio at March 31, 2011. The following table shows the changes in carrying value for bank and insurance trust preferred CDOs at March 31, 2011 compared to December 31, 2010 according to original ratings:

For original AAA-rated securities, the changes in CDO valuations were attributable to an increase in the limited trading activity, which provided additional market-based information to estimate fair value. For original A- and BBB-rated securities, the valuation changes resulted from an enhancement in valuation modeling that incorporates the performance of previously deferring collateral. The performance for certain deferring collateral improved during the quarter such that the payment of interest resumed. Accordingly, expectations have been revised regarding the extent of currently deferring collateral ultimately repaying contractually due interest. Also during the first quarter, the Company sold $33 million par amount ($4 million amortized cost with essentially no carrying value) of CDO securities.

Noninterest Income and Noninterest Expense

Noninterest income for the first quarter of 2011 was $134.1 million compared to $113.2 million in the fourth quarter of 2010. The increase resulted primarily from the $18.9 million pretax gain on FDIC-supported loans discussed previously.

Noninterest expense for the first quarter of 2011 was $408.4 million compared to $443.4 million for the fourth quarter of 2010. The more significant changes from the fourth quarter include a $7.7 million increase in salaries and employee benefits due to increased payroll taxes and adjustments in benefit-related accruals; reduced credit related and legal and professional expenses of $9.1 million; and a reduction of $23.3 million in the provision for unfunded lending commitments, resulting in a negative provision of $9.5 million.

Conference Call

Zions will host a conference call to discuss these first quarter results at 5:30 p.m. ET this afternoon (April 18, 2011). Media representatives, analysts and the public are invited to listen to this discussion by calling 1-877-368-2147 (international 253-237-1247) and entering the passcode 52656923, 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 18, 2011, until midnight ET on Monday, April 25, 2011, by dialing 1-800-642-1687 (international 706-645-9291) and entering the passcode 52656923. 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 “net earnings (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 these non-GAAP financial measures exclude the effects of the (1) periodic discount amortization on convertible subordinated debt; (2) accelerated discount amortization on convertible subordinated debt which has been converted; 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. Excluding these amortization and accretion adjustments facilitates the ability of management and the Board of Directors to assess the ongoing 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