On April 20, 2009, Zions Bancorporation, the holding company for Zions Bank, reported a loss of $832.2 million, or $7.29 per diluted common share. Reflected in these results are the continued effects of the worst financial and economic downturn our country has seen in many years.
While the reported loss for the first quarter is significant, it is important to take a look inside the results to get an accurate picture of the strength of the company’s core banking business. Of the reported loss, $634 million ($5.55 per common share) is a noncash accounting matter — writing off an intangible asset called “goodwill.” The writing off of goodwill occurred in Zions’ Texas affiliate, Amegy Bank, and primarily reflects the decline in market values of peer banks in Texas and a weaker economic outlook for the state. Amegy Bank itself continues to demonstrate solid performance.
An additional $249 million ($1.35 per common share) of the loss reflects valuation losses in Zions’ securities portfolio. As was announced earlier in the quarter, Zions Bank purchased most of the assets of Lockhart Funding during the first quarter (and we expect to purchase the remaining assets in Lockhart in the second quarter). While the impact of buying these securities, as well as the impairment charges on other securities, resulted in additional loss for the company, the consolidation of Lockhart eliminates some uncertainty surrounding Zions’ future performance and is likely to be viewed as a positive event by the investment community.
Excluding these two noncore banking items, the loss from Zions Bancorporation’s core banking operations was $0.39 per diluted common share.
Zions Bank had “core bank” net earnings of $11.8 million for the first quarter, as the core banking business of Zions remains strong. We are experiencing solid growth in our deposits. During the first quarter, Zions Bank’s total deposits grew by $1.7 billion. We are also actively making loans — in fact, Zions Bank originated $500 million in new loans in the first three months of 2009.
Our capital position remains strong, with many capital ratios higher now than they’ve been in years, and our liquidity has been significantly strengthened in recent months. In fact, we have repaid essentially all of our short-term debt, resulting in considerable borrowing power in addition to our cash balances.
Zions Bank also continues to build reserves against potential future loan losses. During the first quarter, Zions Bank put aside $65 million as a provision for potential loan losses. During that same period, the bank experienced $42.2 million in actual loan losses. This means that Zions Bank reserved 1.54 times more for losses than was actually experienced in the quarter.
You may have also seen the announcement by Zions Bancorporation in April that our Nevada State Bank affiliate acquired the failed Great Basin Bank in Nevada. This transaction serves as yet another example of the FDIC’s confidence in our strength and stability. This follows FDIC-supported acquisitions by Zions affiliates of Alliance Bank in California in February 2009 and the acquisition of the insured deposits of Silver State Bank in Nevada in September 2008.
While it is likely that economic conditions will remain difficult throughout this year, and that it will continue to be a challenging year for the banking industry, we remain optimistic about our future. Zions Bank’s 135-year history demonstrates our ability to weather economic storms when they arise. We have been through challenging times before. Not only have we met the challenges that have come, we have emerged from them stronger and more competitive. I remain confident that Zions Bank will similarly emerge from the current economic challenges.
Thank you for choosing to do business with Zions Bank. We are committed to our clients and we are committed to our communities. While these are challenging economic times, we are well positioned to weather the storm, and to help you do the same.
A. Scott Anderson is President and Chief Executive Officer of Zions First National Bank
Featured in the May/June 2009 issue of Zions Bank’s Community magazine.
*Artwork from vinicius.cipriano under Creative Commons license at Flickr.com.