Zions posts $40.7 million loss in 2nd quarter

Zions Bancorp. on Monday reported a second-quarter net loss of $40.7 million, mostly due to the need to set funds aside to cover problem loans.

Salt Lake-based Zions set aside a much larger sum — $762.7 million — in the second quarter compared to $114.2 million during the same period the previous year. The increase was in anticipation of "deterioration" in commercial real estate and commercial industry loan portfolios, officials said Monday during a conference call to discuss second-quarter earnings, held after the stock markets closed.

The quarterly loss was a significant improvement over its first-quarter 2009 loss of $852.3 million. But just a year ago, Salt Lake-based Zions reported a profit of $69.7 million, or 65 cents a share.

The second-quarter loss equals 35 cents per share, compared to the $7.47-per-share loss in the first quarter. Wall Street analysts' consensus expectation for the company was a loss of $1.02 during the quarter.

Zions shares closed at $12.22 Monday, up 66 cents during the day. The price range for the last 52 weeks is $5.90 to $54.90.

Chairman and CEO Harris H. Simmons noted that Zions has increased capital ratios and built up its reserves to deal with problem loans, all in "what is continuing to be a very challenging credit environment."

Among positives, he said, were a 5 percent increase in pretax earnings compared to the first quarter, a solid margin performance and "quite good" cost control, as well as the successful execution of several capital transactions. Zions trimmed excess cash balances by more than $1 billion, and as there are more signs of economic stabilization, he said the corporation would further reduce some of its cash balances and excess liquidity.

Net loan and lease charge-offs were $347.5 million, compared with $67.8 million a year ago. The loan charge-off included a $47 million loan to a company that has been in bankruptcy. While Zions got the loan off the books, Simmons said, they expect to recover all or most of it in 2010.

Chief financial officer Doyle L. Arnold predicted that the provision for loan losses will continue to be up next quarter, but not as much. But he noted that there are "countervailing indicators in credit quality and it is very, very hard to predict."

In a question-and-answer session, Arnold said, "I think sustained profitability is not likely this year, but may well come in 2010." Asked which markets are causing the most concern regarding the troubled loans, he said, "All of them. It's still a pretty crummy economy out there and we're seeing deterioration in all of it."

The detailed earning report is online at www.zionsbancorporation.com.

e-mail: lois@desnews.com