ZIONS BANCORPORATION REPORTS EARNINGS OF $0.98 PER DILUTED COMMON SHARE FOR FIRST QUARTER 2008
Las Vegas, Nev.
April 17, 2008
Nevada State Bank's parent company, Zions Bancorporation (Nasdaq: ZION) ("Zions" or "the Company") today reported first quarter net earnings applicable to common shareholders of $104.3 million, or $0.98 per diluted common share, compared to $149.7 million or $1.36 per diluted common share for the first quarter of 2007. The return on average common equity was 8.18% compared to 12.25% for the first quarter of 2007.
First Quarter 2008 Key Performance Highlights Compared to Fourth Quarter 2007
"Our subsidiary banks in California, Arizona, and Nevada continued to see their performance impacted by the extremely soft residential housing market in those states," said Harris H. Simmons, chairman and chief executive officer. "While the general economy is slowing in other markets, our banks in Texas, the Intermountain West, and the Pacific Northwest continued to see growth and relatively strong performance. Our continued focus on conserving capital and managing interest rate risk resulted in remarkably stable capital ratios and net interest margin, in spite of a very challenging environment," added Simmons.
On-balance-sheet net loans and leases were $39.9 billion at March 31, 2008, an increase of approximately $0.8 billion or 8.4% annualized from $39.1 billion at December 31, 2007, and an increase of approximately $4.0 billion or 11.0% from $35.9 billion at March 31, 2007. This increase includes $283 million of loans resulting from the purchase of certain securities from Lockhart Funding LLC, an off-balance sheet commercial paper conduit sponsored by Zions Bank, as discussed subsequently. These securities were backed by loans originated or purchased by Zions Bank and came back on the Company's balance sheet primarily as owner occupied commercial loans. Loan growth during the quarter was concentrated primarily in commercial lending and secondarily in commercial term real estate loans, principally at Zions Bank and Amegy Bank of Texas. Construction and land development loans declined meaningfully in California, Arizona and Nevada during the quarter, offset by growth in Texas.
Average core deposits for the first quarter of 2008 increased $0.3 billion or 3.4% annualized to $32.1 billion compared to $31.9 billion for the fourth quarter of 2007 and increased $1.8 billion or 5.8% compared to $30.4 billion for the first quarter of 2007. Core deposit growth was concentrated in Internet money market, savings, and money market accounts. Average total deposits for the first quarter of 2008 increased $0.2 billion to $36.6 billion or 2.3% annualized compared to $36.4 billion for the fourth quarter of 2007, and increased $1.4 billion or 4.0% compared to $35.2 billion for the first quarter of 2007. Average noninterest-bearing demand deposits for the first quarter of 2008 were $9.0 billion compared to $9.3 billion for the fourth quarter of 2007 and $9.4 billion for the first quarter of 2007.
Net Interest Income
Net interest income for the first quarter of 2008 increased $7.6 million or 6.4% annualized to $486.5 million compared to $478.9 million for the fourth quarter of 2007, and increased $29.4 million or 6.4% compared to $457.1 million for the first quarter of 2007. Taxable-equivalent net interest income for the first quarter of 2008 increased $7.4 million or 6.1% annualized to $492.5 million compared to $485.2 million for the fourth quarter of 2007, and increased $28.8 million or 6.2% from $463.7 million for the first quarter of 2007.
The net interest margin was 4.23% for the first quarter of 2008 compared to 4.27% for the fourth quarter of 2007 and 4.51% for the first quarter of 2007. The effect of commercial paper purchased from Lockhart on the net interest margin was a reduction of approximately 11 basis points for the first quarter of 2008 and 6 basis points for the fourth quarter of 2007.
Nonperforming assets were $434.3 million at March 31, 2008 compared to $283.9 million at December 31, 2007 and $82.5 million at March 31, 2007. This increase is primarily due to weakness in residential development and construction activity in the Southwest that started in the latter half of 2007 and began to show signs of deterioration in Utah/Idaho during the first quarter of 2008. The ratio of nonperforming assets to net loans and leases and other real estate owned was 1.09% at March 31, 2008 compared to 0.73% at December 31, 2007 and 0.23% at March 31, 2007.
Net loan and lease charge-offs for the first quarter of 2008 were $50.8 million or 0.52% annualized of average loans. This compares with $26.7 million or 0.28% annualized of average loans for the fourth quarter of 2007 and $10.1 million or 0.11% annualized of average loans for the first quarter of 2007. The increase in charge-offs largely was driven by declining collateral values on residential
The provision for loan losses was $92.3 million for the first quarter of 2008 compared to $70.0 million for the fourth quarter of 2007 and $9.1 million for the first quarter of 2007. The combined provisions for loan losses and unfunded lending commitments were $95.9 million for the first quarter of 2008, $70.1 million for the fourth quarter of 2007, and $9.4 million for the first quarter of 2007.
The allowance for loan losses as a percentage of net loans and leases was 1.26% at March 31, 2008, 1.18% at December 31, 2007, and 1.03% at March 31, 2007. The allowance was 126.0% of nonperforming loans at March 31, 2008. The total allowance and reserve for credit losses (allowance for loan losses plus the reserve for unfunded lending commitments) was $526.4 million or 1.32% of net loans and leases at March 31, 2008 compared to $480.9 million or 1.23% at December 31, 2007 and $391.2 million or 1.09% at March 31, 2007.
Available-For-Sale Securities and Lockhart Funding The Company recognized other-than-temporary impairment ("OTTI") during the first quarter of 2008 of approximately $40.8 million pretax, or $0.24 per diluted share, mainly for certain available-for-sale trust preferred REIT CDOs. Of this, $7.8 million resulted from a determination of additional value impairment on seven securities with OTTI in the fourth quarter of 2007, while $33.0 million resulted from three additional securities deemed to have OTTI in the first quarter of 2008. This impairment was based on an ongoing valuation review of the investment securities portfolio. OTTI during the fourth quarter of 2007 for certain REIT CDOs was $108.6 million.
During the first quarter of 2008, Zions Bank purchased certain securities at fair value from Lockhart. The purchases amounted to approximately $280 million at book value and were made pursuant to a liquidity agreement. The resulting pretax loss was approximately $5.2 million, or $0.03 per diluted share. The purchase of approximately $275 million of these securities was due to the inability of Lockhart to issue a sufficient amount of commercial paper and $5 million was related to an investment that was downgraded. The securities purchased included $200 million of small business loan securitizations created by Zions Bank. No gain or loss was recognized on the purchase of these loan securitizations. Upon dissolution of the securitization trusts (including $83 million of related securities owned by the Parent), the Company recorded $283 million of loans on its balance sheet. Securities purchased from Lockhart during the fourth quarter of 2007 amounted to approximately $895 million, of which $55 million related to investment downgrades, and resulted in a pretax loss of approximately $49.6 million. Lockhart has approximately $1.75 billion of securities at March 31, 2008.
The Company has also purchased asset-backed commercial paper from Lockhart which resulted in on-balance sheet holdings of approximately $1,227 million at March 31, 2008, $710 million at December 31, 2007, and $500 million at September 30, 2007. The amount of Lockhart commercial paper included in money market investments on the Company's average balance sheet was approximately $1,202 million for the first quarter of 2008, $763 million for the fourth quarter of 2007, and $232 million for the third quarter of 2007. These purchases were made to provide liquidity to Lockhart due to ongoing contraction and disruptions in the credit markets.
Visa IPO Gain and Accrual Reversal
During the first quarter of 2008, the Company's subsidiary banks recorded an aggregate pretax cash gain of approximately $12.4 million from the partial redemption of their equity interests in Visa Inc. The redemption approximated 39% of the subsidiary banks' equity interests. In addition, the Company reversed approximately $5.6 million during the first quarter of its $8.1 million fourth quarter 2007 accrual for indemnification liabilities related to certain Visa litigation. The combined pretax benefit to first quarter earnings from these events was $18.0 million, or $0.10 per diluted share.
Noninterest income for the first quarter of 2008 was $111.0 million compared to $(20.2) million for the fourth quarter of 2007 and $145.4 million for the first quarter of 2007. The amounts for the first quarter of 2008 and the fourth quarter of 2007 were adversely affected by impairment and valuation losses on securities of $46.0 million and $158.2 million, respectively. Excluding these losses, noninterest income was $157.0 million for the first quarter of 2008 and $138.0 million for the fourth quarter of 2007. Noninterest income for the first quarter of 2008 includes the previously discussed $12.4 million Visa IPO gain which is included in equity securities gains. Fair value and nonhedge derivative income (loss) increased $10.8 million for the quarter primarily because of nonhedge derivative income of $3.9 million compared to losses of $7.4 million during the fourth quarter of 2007.
Noninterest expense for the first quarter of 2008 was $350.1 million compared to $353.0 million for the fourth quarter of 2007 and $352.0 million for the first quarter of 2007. Salaries and employee benefits increased from the fourth quarter of 2007 primarily because of reductions to bonus, long-term incentive, and profit sharing accruals during the fourth quarter of 2007 and due to increased payroll taxes during the first quarter of 2008. Other noninterest expense decreased $17.0 million mainly due to the first quarter reversal of much of the fourth quarter 2007 Visa indemnification accrual.
The efficiency ratio was 58.0% for the first quarter of 2008 compared to 75.9% for the fourth quarter of 2007 and 57.8% for the first quarter of 2007. Excluding impairment and valuation losses on securities, and the Visa IPO gain and indemnification accruals, the efficiency ratio was 55.8% for the first quarter of 2008 and 55.3% for the fourth quarter of 2007.
Adoption of New Accounting Standards
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. Both Standards address the application of fair value accounting and reporting. The cumulative effect of adopting SFAS 159 decreased retained earnings at January 1, 2008 by $11.5 million. As previously reported, the Company elected to apply SFAS 159 to one available-for-sale REIT CDO security and three retained interests on selected small business loan securitizations. During the first quarter of 2008, the net change in fair value decreased earnings by approximately $0.6 million, consisting of a $2.3 million fair value decrease for the REIT CDO security and a $1.7 million increase for the retained interests.
The Company's tangible equity ratio was 6.20% at March 31, 2008 compared to 6.17% at December 31, 2007 and 6.59% at March 31, 2007.
Weighted average common and common-equivalent shares outstanding for the first quarter of 2008 were 106,722,000 compared to 106,902,983 for the fourth quarter of 2007 and 110,106,637 for the first quarter of 2007. Common shares outstanding at March 31, 2008 were 107,139,188 compared to 107,116,505 at December 31, 2007 and 109,052,149 at March 31, 2007.
The Company has not repurchased any common shares since August 16, 2007 and does not anticipate a resumption of share repurchases in the near term.
Zions will host a conference call to discuss these first quarter results at 5:30 p.m. ET this afternoon (April 17, 2008). Media representatives, analysts and the public are invited to listen to this discussion by calling 1-800-901-5213 (international: 617-786-2962) and entering the passcode 89314682, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation Web site at www.zionsbancorporation.com. A replay of the call will be available from 7:30 p.m. ET on Thursday, April 17, through midnight ET on Thursday, April 24, by dialing 1-888-286-8010 (international: 617-801-6888) and entering the passcode 25643975. 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 over 500 offices and approximately 600 ATMs 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.
Statements in this news release that are based on other than historical data 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. These forward-looking statements are not guarantees of future performance, 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 news 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 nationally or locally in areas in which the Company conducts its operations, including changes in asset-backed commercial paper markets and valuations in structured securities and other assets; changes in interest 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; and changes in accounting policies or procedures 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 the 2006 Annual Report on Form 10-K of Zions Bancorporation filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov).
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.
Nevada State Bank, with assets of $4.0 billion, is the fourth largest commercial bank in Nevada. Established in 1959, it is the oldest state-chartered bank in Nevada with a total of 71 branches statewide. Many of these branches are conveniently located in Smith's Food & Drug Stores, which are open on evenings and weekends. Nevada State Bank is a full-service bank offering a complete range of consumer and business services. For more information on Nevada State Bank, call 702.383.0009 or access www.nsbank.com.