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Zions Bancorporation (NASDAQ:ZION)

Q2 2009 Earnings Call

July 20, 2009; 5:30 pm ET

Executives

Harris Simmons - Chairman & Chief Executive Officer

Doyle Arnold - Vice Chairman & Chief Financial Officer

Jerry Dent - Executive Vice President of Credit Administration

James Abbott - Director of Investor Relations

Analysts

Brian Foran - Goldman Sachs

Ken Zerbe - Morgan Stanley

Leo Harmon - FMA

Ken Hoexter - Bank of America/Merrill Lynch

Craig Siegenthaler- Credit Suisse

Dave Rochester - FBR Capital Markets

Jason Goldberg - Barclays Capital

Jason Goldberg - Barclays Capital

John Hecht - JMP Securities

Jennifer Demba - SunTrust Robinson Humphrey

Brian Klock - KBW

Bob Patten - Morgan Keegan

Greg Ketron - Citigroup

Operator

Good day, ladies and gentlemen and welcome to the second quarter 2009 Zions Bancorp earnings conference call. My name is Jerry and I’ll be your coordinator today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

I would like to turn the call over to Mr. James Abbott, Director of Investor Relations.

James Abbott

Thanks Jerry and good evening. We welcome you to this conference call to discuss our second quarter 2009 earnings. I would like to remind you that during this call we will be making forward-looking statements, actual results may differ materially. We encourage you to review the disclaimer in the press release dealing with forward-looking information, which applies equally to statements made in this call.

We will be referring to several schedules in the press release during this call. If you do not yet have a copy of the press release, it is available as it is available as an Adobe Acrobat file www.zionsbankcorporation.com and can be easily down loaded and printed. We will limit the length of this call to one hour, which will include time for you to ask questions. During the Q-and-A we ask you limit your questions to one primary and one follow up questions to enable other participants to ask questions.

I will now turn the call the time over to Harris Simmons, Chairman and Chief Executive Officer. Harris.

Harris Simmons

Thank you very much, James. Let me start by welcoming James as our new Director of Investor Relations. We are really pleased to have him here with us and he’s already making a great contribution to our company. We welcome all of you to the call and appreciate your interest in the company and what is obviously continuing to be a very challenging credit environment.

The second quarter might be best summed up as a mixed quarter with several notable positive developments offset by continued pressure on credit. We are very encouraged by a 5% increase in our core pre-tax, pre-provision earnings compared to the first quarter. This keeps that very strong core measure of earnings at just over $1 billion annually and it reflects solid margin performance and what we think has been good cost control in recent months as well as the successful execution of several capital transactions which have bolstered our capital ratios.

We’ve had, during the quarter strong average non-interest bearing deposit growth. That was a significant factor in the improvement in net interest income, which increased 4% over the prior quarter. These deposits increased nearly $800 million or 8% sequentially. This growth allowed us to reduce some of our higher cost CDs and broker deposits and in turn to shed low yielding assets.

Most notably, we trimmed excess cash balances by more than $1 billion. These assets had a meager yield of only about 30 basis points and have been carried as a negative spread. During the prior two quarters we’d increased our liquidity levels due to the crisis conditions in the market at the time and as economic conditions continue to show signs of stabilization, we plan to continue to take steps to further reduce some of these cash balances and excess liquidity.

During the quarter, we engaged in several capital market actives designed a significantly enhance our capital levels. In aggregate we increased our tangible common equity by $511 million an 18% increase from the first quarter level, we were able to accomplish this while minimizing delusion to exiting shareholders as common shares outstanding increased just over 8%.

These actions achieved almost exactly what we estimated when we announced them on June 1, and in some cases was slightly ahead of plan. On a gross basis, such actions added 99 basis points to our tangible common equity to asset ratio. Net, our tangible common equity to asset climbed to 5.66% from 5.26% in the first quarter. Our tier-1 common to risk weighted asset ratio, a new ratio that many of you are tracking rose to approximately 6.07% from 5.73%.

The largest single offset to the positive developments in the quarter is further deterioration in credit, or in part reflected I guess by a significant increase in allowance for credit losses. This was caused by a re-estimation of some of loss migration factors particularly, with regard to CRE loans and the incorporation of the possibility of a more protracted credit cycle, which led to a provision of more than $760 million in the quarter.

Net charge-offs increased to $347 million, within that net charge-off number, I think it’s important to note there is one single loan charge-off amounting to just over $47 million, might be viewed as unusual. We talked about the credit before, the company is in bankruptcy. The bankruptcy process is taking longer than we originally expected. Therefore, we elected to change the loans off in it’s entirely.

However, subsequent to quarter end additional developments suggest that we may expect full repayment most likely in mid 2010. So we’d expected substantial recovery all along, but felt that the asset was not bankable as an asset on our books. Now we expect to see full resolution in mid 2010.

Excluding that loan, our net charge-offs were about 2.9% of average loans, up from 1.5% in the prior quarter. The elevated net charge-offs are attributable to continued deterioration in collateral values, primarily in the construction category. Finally, we are very pleased to report on the acquisition of Vineyard Bank on Friday. This is the fourth FDIC assisted transaction we’ve completed within the last year.

Vineyard helps fill out our Southern California franchise and we were able to assume the bank with very limited capital strain and credit risk due to loss sharing from the FDIC. The economics on this, as we’ll explain in a few minutes are extremely compelling for us.

With that overview, I’ll now ask Doyle Arnold, our Vice Chairman and Chief Financial Officer, to review the quarterly performance.

Doyle Arnold

Thank, Harris. Good evening everyone. Let me also welcome James to his first quarter on this side of the phone after spending a number of years on your side of the phone. We’ve got a lot to go through, again I’ll try to cover a lot, and I will try to leave some time for questions at the end.

As noted in the press release the highlights are, we had a net loss attributable to common $40.7 million, or $0.35 per diluted share for the quarter. As Harris mentioned, our core pretax, pre-provision earnings actually climbed to an annualized $1.05 billion.

We’ve talked about it being in the range of a billion dollars before, that’s up about $45 million from the prior quarter and it excludes several items that we think are unusual or lumpy, otherwise one time in nature, but represents our capacity to earn our way through this economic cycle.

Capital actions added in addition to the capital impact that Harris mentioned added $340 million after tax or $2.93 per share to the bottom line and so as Harris said, total capital raised was $511 million, but $171 million of that went directly to the capital part of the balance sheet, it did not flow through the P&L.

The major offsetting factor was the much larger than normal provision of more than $760 million, of which about $415 million went into building the allowance for loan losses. The reserve build amounted to approximately $2.20 a share. Impairment and valuation losses on securities were $53.7 million, down from $283 million in the prior quarter; and OTTI on the bank and insurance CDOs which I know a lot of you are focused on was $18.3 million of that, also down very substantially from previous quarters.

Finally, Lockhart was fully consolidated by the end of the second quarter, no additional balance sheet impact or evaluation losses to come from Lockhart. Now to go into some of the more salient details, if you will follow me please to Page 14 of the schedules. I will note first that total assets declined $1.6 billion compared to the second quarter and of that, about $900 million was a reduction in interest bearing deposits and commercial paper line of the money market investments.

We indicated last quarters call that we had a couple of billion dollars of excess liquidity and we were going to endeavor to shrink that, because in effect those investments carried a negative spread. We have made significant progress toward that objective, but we don’t believe we are finished yet at this point.

You’ll also note just a few lines down the page under investment securities that we moved a significant amount about $557 million of securities from the held-to-maturity category to the available-for-sale category. These were predominantly bank and insurance CDOs that had been downgraded to below investment grade. We believe these have the most potential for any future OTTI. We have no current plans to sale these securities, but this reclassification does give us greater flexibility and dealing with them in the future.

In the deposit section a lot of interesting things to point out. First, as Harris mentioned noninterest-bearing DDA was $11.1 billion at the end of the quarter, up $624 million from the prior quarter and it’s more than $1.4 billion greater than a year ago.

I won’t go to the average balance sheet, but average noninterest-bearings deposits increased about $800 million during the quarter. Some of the increase in DDA was a move out of foreign deposits, namely sweep accounts. You can see that foreign declined $240 million and essentially all of that we believe ended up in back on shore in noninterest-bearing, non-personal or business DDA accounts.

You can also see some of the other actions to reduce more expensive funding. Jumbo time deposits were down a couple hundred million. Money market accounts were down, a lot of that were brokered money market accounts. Federal home loan bank advances were down. We repaid both some term borrowing, as well as paid down some short term borrowings. You add all of that together you get to a reduction in both deposits and borrowings that were offset by the decline in the balance sheet assets.

As we’ve mentioned, it’s essentially our funding that’s driving the size of the balance sheet at this point. So, as we can shrink expensive sources of funding, we can bring the assets side down and run off more low spread earning assets.

If we turn now to page 15, I’ll note first of all that part of one of the contributors to the core earnings engine, Harris mentioned in his opening remarks was that net interest income was up nearly $19 million before provision for loan losses.

During the quarter, despite the balance sheet shrinkage that I just mentioned or maybe because of the balance sheet shrinkage in part that we paid down deposits or reduced deposits that were costing us more than the assets that they were earning. There were other contributing factors, which we will come to when I talk about the margin.

I will note under noninterest income that the first four lines, which are short of core. NII were relatively stable, nothing particularly unusual to talk about there. As you heard from some others a little up tick in our capital market and foreign exchange activity just not as big of a business as therefore a smaller impact than some others have reported.

Fair value and nonhedge derivative income of $20 million was again positive about $13 million of those gains were due to hedge and effectiveness in the recognition of gains on those instruments. You strip that out and you still have nonhedge derivative income back in a positive territory as opposed to being a drag on earnings as it was for a number of quarters, up through the fourth quarter of last year.

The impairment losses on investment securities, has a net of $42 million down from $83 million in the prior quarter and $196 million in the quarter before that. This was split between credit impairment of $42 million that went through the income statement and the remainder of $29.5 million went to other comprehensive income. We’ll also talk a bit more about the securities portfolio in a bit.

Valuation losses on securities purchased was $11.7 million; that’s just below the impairment line and it’s a combination of the last write-downs on the securities and consolidating Lockhart, as well as the small additional write-down on some auction rate securities that were purchased in the prior quarter. We don’t expect much in the way of activity on that line going forward.

Below that is the $466 million gain on the swap termination and the debt modification that has been detailed on page three in the press release and about which we talked a lot in the June 1 call, as well as in our report around June 30 of the wrap up of the capital markets actions.

Acquisition related gains of $23 million. Those gains are attributable to the alliance and great basin acquisitions. Alliance was closed very late in the first quarter. We had initially, on a preliminary basis booked something over $10 million of goodwill.

Re-estimation of the fair value of the assets acquired led to the booking of a bargain purchase gain related to that acquisition, and then an additional gain related to the acquisition of great basin in Nevada in the second quarter. We expect to also recognize a larger bargain purchase gain under FASB 141 R in the third quarter related to Vineyard Bank which I’ll talk about in a minute.

Non-interest expense; core non-interest expenses were essentially flat despite a $4 million run rate in the increase in the FDIC assessment and about a $4 million increase in workout expenses. Salary and employee benefits declined sequentially quarter-over-quarter about $2 million, despite the fact that we added over about 100 employees from the two FDIC assisted deals and had expense during the quarter.

The second quarter of 2009 included $4.3 million of severance costs, which was about $2.5 million more than the first quarter. So we’re pretty pleased with the salary and employee benefits line coming down despite those unusual items. We have reduced FDE by about 3.2% since year end, even while adding staff from the two FDIC assisted transactions.

FDIC premiums increased substantially and included a $24.2 million special one-time assessment. Our best estimate of the run rate per quarter, absent those assessments now is around $18 million, for those of you trying to model that expense going forward, and that does not include any other rumored special assessments that might happen fourth quarter later or in the future years.

There are two other unusually large items included in other expense. One is debt extinguishment cost of $5.1 million, a lot of that related to early repayment of term that are home loan bank borrowings that I mentioned earlier, those came down. The remainder is, we had a provision for the unfunded lending commitments of $7.9 million, which is rather larger than it had been in most prior quarters.

Finally, just above the net earrings applicable to common, you will note in effect, a negative preferred stock dividend of $52.4 million, its label preferred stock redemption. That’s where the common equity pick up of the tender offer for the series A preferred shares shows up. So we’re in an unusual situation this quarter, where earnings are applicable to common or better than total net income.

We’ll talk a bit about the investment securities portfolio. Once again, we’ve provided you with two versions of it, showing you on page 18, how they breakout using the highest credit rating on age security and on page 19, how they breakout using the lowest credit rating. There do remain significant differences between the various rating agencies on how we treat that.

Just for clarification, the par value, on the first column we’ve gotten questions about this. It shows the value that we would realize upon full payment of the security, in accordance with its terms. It’s not the original face value, but in effect the remaining face value.

There were kind of two countervailing impacts on the valuations of these securities during the quarter, some positive and some negative. The positives were the bank stock prices, as I think you’re aware generally improved significantly compared to March 31 values and the bank stock price volatility declined. In our level three modeling, both of these favorably impact the default probabilities, i.e., reduce it, and therefore favorably impact the expected impairment on the issues that we hold.

Furthermore, the rate of defaults so far has been below the assumed default rate in our models up until now. Offsetting that is individual banks that are in our CEO pool also experienced deterioration. More of them began to defer interest payments on the trust preferred debts, which triggered additional impairment in our securities and acceleration in bank closures or deferrals to a level above our projected rate during the next several months could cause additional impairment charges; although, we don’t think they’re likely at this stage to jump meaningfully from the kind of level you saw in this quarter.

We’ve also added one further degree of granularity to the schedule. We’ve broken the non-investment grade securities in available for sale and in held-to-maturity down at two components. We have separated out specifically. You can see it in the third line of numbers.

I’m on page 19, held-to-maturity you can see non-investment grade/OTTI-picked. You can see that line again under other and then down under available for sale you can see at under trust preferred securities bank and insurance with a $786 million handle etc.

So we’ve broken out separately those specific CDOs that either we have OTTI or have picked or take this payment in kind for those of you who may not be familiar with the acronym. We’ve done this, because we think that it’s most likely that future OTTI if it occurs is more likely to come out of those securities than the other securities. So we’ve broken those out separately.

The largest piece of this as I mentioned is in the available for sale, trust preferred bank and insurance of $78.6 million. Notably, the company’s tangible common equity balances and ratios already reflect the $359 million reduction in this portfolio, i.e., to 46% of par. So, we’ve already incorporated that much into our capital ratios and balance if they were deemed totally worthless on an after tax basis impact capital by another 212. Though if we were to impair the amount that’s already NOCI, it would have an adverse impact on earnings, but wouldn’t affect tangible capital.

Turning now to page 20, credit quality. Provision for loan losses was up significantly for the prior quarter. Several things drove it to a higher level of internal criticized and classified loans, and the re-estimation of some of our loss migration factors based on more recent lost history. Then we’ve also tried to incorporate the possibility of maybe not the likely hood of a somewhat more contracted credit cycle, so there was some reserve building driven by those factors.

Non-performing loans and OREO increased 17% to $1.9 billion if you exclude the FDIC supported assets. I will note that the FDIC supported assets reflects both, some reductions in the alliance assets that were worked out or charged off during the quarter, as well as the addition of the great basin assets. There will be a somewhat larger addition of FDIC supported assets in the third quarter due to the Vineyard Bank acquisition that we announced on Friday night.

So that line will mostly likely continue to increase, although we’ve had success inline with or better than we had hoped thus far, in the rate of resolution of alliance bank problem assets. The shares noted earlier $347 million of net charge offs, did include the $47.5 million that was related to a single large C&I credit that we’ve commented on previously, and on which substantial or complete recovery or still expected in 2020.

In terms of where the losses came from, I’ll just note that our Nevada and Arizona bank accounted for just about 50% of net charge-offs or 58% if you exclude that one large lump. In other words, they were right around $150 million between the two of them.

Real estate construction loans in term of the type of loan, also accounted more about 50% of total losses. The larger components again were in Arizona and Nevada. The real estate construction losses came about one-third from residential acquisition and construction and about two-thirds from commercial acquisition and construction.

The reserve balance increased approximately 50% and the ACL at the bottom of the page, the Allowance for Credit Losses, which included the unfunded commitments reserve increased to 3.23%. That would have put us, based on the first quarter data for peers in the top quartile among regional banks in terms of ACL.

We do expect there will be some further increases in that reserve coverage ratio in the next couple of quarters, but the increase we don’t think will be assured; it’ll be much more modest than this quarter we believe.

A few comments on loan quality trends there is still deterioration overall, but there are some areas where credit trends maybe moderating a bit. Early stage delinquencies, that is 30 to 89 days past due actually fell 35% to $509 million, down from $781 million in the prior quarter. On a consolidated basis, these delinquencies are more closely comparable to the level at the end of year, 2008 and the Nevada and Arizona subsidiaries are back to where they were at approximately September of 2008.

Total delinquencies including 90 days past due were roughly flat for the quarter and that may be encouraging. Classified assets in Texas declined slightly in the second quarter, after sharp increases in each of the last two quarters. While there have been some increases in problem term CRE and C&I loans. Construction loans continue to make up the vast majority of the problem credits and charge-offs at this time.

Turning to page 21, we’ll talk about we’re at loan growth or loan declines. C&I or total loans declined $566 million, about $41.5 billion. The significant percentage of that decline is attributable to charge-offs. The largest declines by category were in C&I down $335 million, and most of that was in the unsecured C&I or secured by other than real estate, which is included in the owner-occupied piece, that was about flat. The borrowers just basically continue to be conservative and try to de-lever.

Commercial real estate in total declined $181 million. Construction and land development was itself down $417 million, reflecting both charge-offs and pay downs, but in terms of CRE, as it has in recent quarters did grow as some commercial construction loans that converted into many prime loan upon completion of the construction project.

Home equity lines saw very modest growth during the quarter, and the portfolio continues to perform very well on both a relative and absolute basis. Delinquencies at the end of June were a bit less than 60 basis points, which by industry standard is rather remarkable these days.

Page 22, net interest margin, the NIM rose to 4.09% from 3.93%, despite the increase in non-performing assets, largely as a function of reducing high cost deposits and lowest yielding assets, primarily and secondarily reducing the liabilities and cost of interest bearing liabilities and the cost of deposits themselves.

You can see on the very top line, money market investments again down about $1 billion. You can note that the total yield on interest earnings assets was about flat. The total cost of interest bearing liabilities was down 20 basis points to 1.55%, and the cost of interest bearing deposits was down even more to 1.46% from 1.73%. So to put it all together, the net interest spread was up significantly as was the net interest margin.

We think that the incremental margin on new loan production was near 5% this quarter and loans had an initial yield of over 6% on new loans during the quarter. A little bit more than 25% of the total loan book was originated during the thinner spread years of 2004 to 2007 and continues to come up for renewal and renewed re-pricing, and that phenomenon will continue for several more years yet.

While it’s difficult to predict exactly what that impact will be, it has been and we think it’s reasonable to expect continued favorable impact on core NIM expansion. Just for those who are counting, the total NIM, adverse impact from non-accrual loans we think is now more than 30 basis points. A couple of other notes that aren’t in the spread sheets, first of all I mentioned the Lockhart funding is fully consolidated at quarter end. There can be no further balance sheet or income statements impacts from repurchases of assets from Lockhart.

Then just to flush out an acquisition, as we noted in the earnings release, on Friday we were selected by the FDIC as the winning bidder on the failed Vineyard Bank in the Inland Empire area, Southern California. Our bid was on a whole bank basis with loss sharing, same kind of bid structure as the last two deals we’ve done. It had no impact on second quarter results quarter results since it closed last Friday night. We bid a discount of $242 million to the stated value of Vineyard’s assets. FDIC will bear 80% of the first $465 million of the loan and OREO losses and 95% of the losses above $465 million.

We expect to recognize a pretax bargain purchase gain in excess of $100 million in the third quarter. The exact amount is we don’t know yet, because we haven’t done the detailed work to fair value all of the assets that we acquired. That will actually take a couple of months.

So, we’ll have an update for you on next quarter’s call, but we think the $100 million number is probably a slightly conservative number, but we’re not sure yet. We expect thereafter that the transaction will be $0.04 to $0.06 of share accretive on annualized basis. Obviously, larger than that in the third quarter, but will settle down to a run rate of $0.01 to $0.015 a share in quarters thereafter.

Due to the bargain purchase gain, we estimate that the acquisition will be roughly neutral to tangible common equity capital ratios and roughly six to nine basis points accretive to Tier 1 capital ratios. The exact numbers will depend on the size of that gain, as well on the exact balance sheet when it’s trued up that was passed from the FDIC receivership to us.

Turning now to summary of guidance for next few quarters and then we’ll open it up for some questions. We continue to try to be very active in our markets and seeking to extend new credits, but in the current economic environment, pay downs and charge-offs are likely to continue to offset or more than offset originations. We do expect continued decline in residential construction and development balances as probably as well as commercial and probably C&I as well.

So, the best look for loan growth is, setting aside or netting out the impact of the Vineyard acquisition, which will add about $1.4 billion in loans. Net of that, we expect flat to declining loan balances again this quarter. We think deposit growth is likely to remain reasonably good, but we’ll continue to try to manage down higher cost CDs and brokered deposits to reduce more of the excess liquidity.

We do expect as I sort of mentioned that the core NIM will continue to expand as we shed this excess liquidity and the more expensive funding sources. However, there will be some noise in the NIM starting in the third quarter that I want to explain. I want to give you three different components for those of you building your models.

First of all, prior quarters had swap gains on those terminated swaps that accreted into income and added about seven basis points to the margin, because of the capital actions that we took, most of those swap gains were recognized completely and immediately in second quarter earnings. We’ll eliminate most of that earnings benefit from future quarters.

So all else being equal, if nothing else happened, the margins would be down seven basis points third quarter compared to second. I’ve already mentioned all else we’d only think will be equal. Other things were driving it the other way, but I just wanted you to know that, that adjustment needs to be made in your thinking.

Furthermore, by marking much of our sub debt-to-market and by adding the option to convert to preferred stock, we’ve created a $382 million net pretax discount on that debt which must be accreted back to par through the P&L over the life of the associated debt, which will act as expense in the net interest income line.

With an important caveat just a moment on that one, the quarterly run rate expense initially associated with this discount accretion will be approximately $16 million, but that run rate will decline if and as various investors exercise their option to convert to preferred stock overtime.

Finally, upon that decision to exercise, to convert from sub debt to preferred stock, the discount accretion is immediately recognized on that debt that converts. So, there will be expecting that conversions maybe lumpy and unpredictable. There will be lots of noise in the NIM over the next several quarters and perhaps a couple of years.

Although, we think it’s going to be a challenge to model it, because timing of those conversions are unpredictable. Therefore, what we do expect to discuss with you in future quarters is the NIM in terms of core NIM, which excludes the above items.

Basically, if you want to get a good starting running rate, the core NIM for 2,000, second quarter was 4%, backing out the preferred swap gain accretion and that was up from 3.83% in the first quarter. We do expect the provision for loan losses and actual losses to remain somewhat elevated in the third quarter, although we’re not predicting a repeat of the second quarter levels. We think will be some reserve build in the third quarter as well, but not as large as the second quarter.

I know you’d like me to be more precise than that, but quite frankly we’ve got countervailing indicators in the credit quality. It’s just very, very difficult to predict how it’s going to model out in the next couple of quarters. OTTI, the rate of defaults has been below our modeling, but the rate of banks deferring has been somewhat higher and has driven additional OTTI charges. We think we could therefore expect to see some continued modest levels of OTTI, perhaps the double digit numbers similar to this quarter.

Bargain purchase gain from Vineyard, I’ve already mentioned that. Expenses: we have additional measures underway to reduce core expenses, but we think these are likely to be at least somewhat offset by continued OREO and other workout expenses. For share count, recall that we issued about half of the announced $250 million of common equity that we were going to sell into the market and we expect to issue the rest during the next couple of quarters at current stock prices. I’m not forecasting, I’m just saying using kind of today’s close, you would add a little less than 10 million shares if you issued it all at that price.

Finally, acquisitions and mergers: I like to note that with the Vineyard acquisition and the two that came before it, we’ve now acquired well in excess of $2 billion of assets in assisted transactions. While we think that the actual loss content is well understood and it will be very successful in working those out, nonetheless, it’s a lot to workout.

Therefore, I think it’s fair to that think we’re likely to take a breather from further such deals in the next quarter or two or perhaps three. We need to make sure that we don’t get indigestion and get behind the curve on those things. So, we think they’re great deals, but there is a limit for how much of that we can hope to manage our way through.

In summary, to conclude while conditions continue to be challenging for us and the industry, we’re encouraged by the continued strength and slight improvement in core pre-tax pre-provision earnings. The improvement in our capital and our loan loss reserve levels and we’re pleased to have been able to acquire another bank in an FDIC assisted transaction that will further strengthen our strategic position in Southern California and will be immediately accretive to earnings without creating any strain on capital.

With that, I think we will pause, give you a moment to organize your questions and then take another 15 or 20 minutes to try to respond.

Question-and-Answer Session

Operator

Your first question comes from Brian Foran - Goldman Sachs.

Brian Foran - Goldman Sachs

I guess one of the big concerns with Zions is that the balance sheet keeps getting a little bit more opaque each quarter and it’s not a criticism. I realize you’re working under some pretty unique issues and unique to put it lightly, accounting standards that are out there, but as we try to cut through the noise of discount accretion held-to-maturity versus available-for-sale, these bargain purchase gains.

What are the key benchmarks you are focused on and you would focus investors on for the three core issues, which in my mind would seem to be whether you have enough capital? Whether credit deterioration is accelerating or decelerating and the long term earnings of the franchise is?

Harris Simmons

I’ll start with the latter one. I think that the core net interest margin is critical, because that’s the key driver of our ability to out of earnings observe ongoing cost of the other items that you mentioned, related to any other items without feeding too much into capital levels.

So, because that the fact the core margin is still expanding even with some increase in NPLs and the fact that it expanded enough such that net interest income pre-provision increased despite the balance sheet shrinking is to me pretty critical and as long as that number stays in $950 million to $1 billion plus range, we are going to be pretty pleased at this point.

The second credit quality, that’s probably the single biggest driver of where we go from here, we don’t probably and I don’t know of any bank that does disclose enough information to get you fully comfortable with what’s going on there. NPLs is not a complete guide they still increased on a gross basis at a fairly rapid rate, although on a net basis the dollar increase and the percentage increase was substantially smaller, meaning it is not getting ahead of us at an accelerated rate.

We do try to give you some information about other underlying trends that’s why I mentioned the early stage delinquencies, which were down, but the internal loan classification continue to increase, except certain areas.

It flattened out in Arizona and Nevada, where we’ve been slogging away at this for the longest time and they also flattened out in Texas and I’m not sure that’s a trend or not at this point, but I think it is too early to tell whether we are a peak or inflection point and credit quality I guess there’s some belief that things are still getting worse, but not quite at the same pace and that’s somewhat encouraging.

The impact of the other items, the accretions of this and the discretions of that, frankly there’s nothing I could do about it other than explain them to you as clearly and carefully as I can which is so you can model them and that’s what we have tried to do, Brian. I know it is complicated and that’s unfortunately we living in a very complicated world these days, with both complicated real economic events as well as complicated and ever changing accounting standards that we are trying to apply to those events.

Brian Foran - Goldman Sachs

I appreciate that and I think you guys have been very open about the impacts of all these things and how it is affecting the balance sheet and helping people think through that. If I could ask a quick follow-up in term of disposing of foreclosed real estate and in particular land.

As we see some more hopeful signs in the housing market, are you seeing increased interest from builders and private investors and if so, do outright sales of land make more sense right now or are there things you can do like land bank strategies where they can buy options as opposed to buying a whole piece of land to help mitigate some of the downside on the balance sheet?

Harris Simmons

My first comment on that would be that we have continued so far to find it advantageous to workout credits one at a time and have not very far down the path of bulk sales of any kind of assets.

We did late last year look at the possibility of a bulk sale in Arizona of some problem real estate assets as a package of several dozen deals we ended up pulling all but a handful of those back off the market and frankly we have had success in working out those deals one at a time. Our experience is that we get about 75% or greater price on doing it one at a time than you’ll find in bulk sales, substantially better than bulk sales.

Doyle Arnold

So, what we’re trying to do in all our banks is significantly bulk up or workout staff. I transferred some lenders to workout and so forth. It is true that housing sales have picked up in some of these distressed markets.

Case-Shiller rate of decline and housing prices has slowed in some of these markets, but most of our issues are further back the food chain in construction and development and land loans and probably really hasn’t had much impact on land prices yet at this point. Jerry, Harris, do you want to comment any further on that?

Harris Simmons

I think, we’re seeing a little better sales activity probably in Phoenix than was the case three or six months ago. I think Las Vegas, as we’ve commented in the last quarter or two as we’ll have a ways to go.

Jerry Dent

I would just repeat that we are seeing, has been mentioned a lot better activity in getting the borrower to actually move the properties rather than bringing it into other risk they’d own. I would also mention that we are seeing some of the larger builders starting to take a bigger interest in buying some of the selected pieces of improved land, or a lot where they pretty are already completed on lots, because they’re now saying they want to make sure they have an inventory when we come out of this.

Doyle Arnold

They’re being selective, but they’re picking the best parcels in the places where they want to have inventory for when they think the turn is there and they think it’s closer now than it was.

Operator

Your next question comes from Ken Zerbe - Morgan Stanley.

Ken Zerbe - Morgan Stanley

I was hoping you could elaborate on what options you guys have by moving the securities from held-to-maturity into available-for-sale?

Harris Simmons

Well, it’s really not an option that we necessarily plan to exercise in the very near future, but we had an opportunity legitimately because of actual events namely, deep downgrades of some of these securities and changing accounting standards to move them for available-for-sale without tainting the rest of the held-to-maturity category. You can do that when the event allows it, but then after that, you can’t do it.

So, if we hadn’t moved them, any attempt to do anything with any one of these securities that we moved in the future would most likely taint the whole held-to-maturity category. So, while we don’t necessarily have an immediate plan, we don’t. This does give us the flexibility overtime to take advantage of whatever structures, options, prices, whatever may the market may present to us in the future and we wouldn’t, if we had left them where they were.

Ken Zerbe - Morgan Stanley

So, if you had left them where they were, you could have been at risk of having to write-down a larger portion of your held-to-maturity portfolio?

Harris Simmons

No, well all of it. If we subsequently disposed of one of these securities and it was still in held-to-maturity that really calls into question your intent and ability to hold to maturity, which is the definition of the category and that’s a pretty bright line test that would likely cause both regulators and our external auditors and my controller who’s sitting here to say the held-to-maturity category is now gone, as far as Zions is concerned for at least two years.

Everything would have been treated as if it was AFS. Since these were the most deeply downgraded securities. They’re the ones that we thought it advisable to have the best flexibility possible going forward, if we ever chose to do something without tainting the rest of the pool of higher quality assets.

Operator

Your next question comes from Leo Harmon - FMA.

Leo Harmon - FMA

Can you talk a little bit about the loss content embedded in aggregate, excluding the $41 million of sort of a one-time and trying to get an idea and get my arms around with the increase quarter-to-quarter, what piece of that was driven by increase in NPLs criticized, and what piece of that was driven by sort of a reevaluation of loss content across the portfolio?

Harris Simmons

I’m sorry. What was the $41 million you mentioned? I got lost in your question I’m sorry.

Leo Harmon - FMA

The reserve on the single loan of $41 million?

Harris Simmons

The single credit that we mentioned was not a reserve; it was a complete charge-off to zero. It was $47.5 million actually. So that was, set that aside and then what’s the rest of the question?

Leo Harmon - FMA

So the rest of the question is going from 157 to 306 or approximately that amount, what piece of that was driven by an increase in NPLs and criticized loans and what piece was driven by the reevaluation of loss content across the portfolio?

Harris Simmons

The answer is, I don’t have that answer. I can tell you that, there were three contributors. One was there was on the whole, a further increase classified loans during the quarter. I mentioned it leveled off in some places, but in the aggregate it was still up and classified loans are where the loans in which you believe there’s the most potential for loss. So that was one driver.

The second driver was that, if we’ve reestimated not all, but a number of the loss content factors based on more recent experience. Particularly, there were increases in those loss content in CRE loans in some of the more distressed markets and that’s probably what you would expect as this downturn has extended and we’ve eaten through more of the collateral value and ability of borrowers to read margin, et cetera.

We did not see on the whole much of an increase in those factors in C&I loans. In some cases they were actually lower than what we, the factors we traditionally have been using. So that was the second driver, and then the third was what we referred to in the release as the accounting approximate for the possibility that this down cycle may be a little longer and the loss realization cycle may be a little longer.

So we balked at saying that, some people might say, we’ve extended the year’s coverage on average in the portfolio. We didn’t think of it that way, but if that’s what you choose to, that’s not a bad rule of thumb. I don’t have the relative components of those three things. Sorry.

Doyle Arnold

So those are for the provision. I think for the charge-offs themselves, it is sort of the $306 million. Actually, right around $300 million of net charge-offs. One way I’d think about it is, if you look at the total C&I book, commercial book, it’s, it had charge-offs of roughly 158 basis points annualized.

Consumer was at about 216 basis points annualized, with the largest piece of that being in one to four family residential and the commercial real estate portfolio had about 530 or so basis points of net charge-off, with most all of that being in the construction piece of it.

Operator

Your next question comes from Ken Hoexter - Bank of America/Merrill Lynch.

Ken Hoexter - Bank of America/Merrill Lynch

Just following on that prior question, as we did think about your comments about still needing to or still thinking you might have additional reserve build in the future, I guess the question is, what are you not necessarily factoring in now that would allow you to still have to build, this is a pretty sizable $415 million addition. So, what are the categories I guess that you’re watching the most for incremental deterioration both product-wise and then geography, please?

Harris Simmons

I think the biggest single one is continued significant declines in collateral values in Nevada and continued stress and strain there. So, we think that the total level of criticized and classified loans isn’t increasing all of that much, but its getting the cost of resolving problems in that market is not getting better.

For those who are familiar with what’s going on in Las Vegas, it is probably one of the hardest hit markets in the country right now. So, that’s maybe the biggest single thing to watch over the next couple of quarters is do we get through the peak of the losses there or do they continue to materialize.

There’s some increase in classified assets in pretty much all of our markets at this point that it will drive some increased provisioning, but again, we are not sure it is, we don’t think it is going to you don’t have all of those other factors at work that I just tried to articulate. So, I think that’s probably the it will be more of the covers Nevada and continue to rise in classifieds into other markets.

Ken Hoexter - Bank of America/Merrill

Can you just really quickly touch on the migration of the book that you are seeing in Texas specifically are you did mention I think that you said that past dues were down a little bit, but that was a book you guys have grown a lot in the middle part of the decade. Can you talk about how that economy and how that portfolio is holding up specifically?

Harris Simmons

Do you want to try it or me?

Doyle Arnold

I think we have seen the significant increase in problem loans relative to where we were six or nine months ago is there has been a market slowing in the Houston economy as the energy industry has been pulling back in capital spending. We are not seeing sizable losses coming out of that at this point, but think that was certainly a driver in our building reserves this quarter was concern that slowing in that economy could lead to higher level of challenges down the road.

So, it is still relative to many markets as measured by employment rates, both Texas as well as Utah and or Utah unemployment is about 5.7%, Texas is also reasonably low compared to national averages, but a lot of this has to do with just the fact that we are seeing slowing and we have seen this increase in potential problems that have yet to reading play themselves out as actual problems at this point.

James Abbott

We are past time we have quite a few questions queued Unidentified Participant out of deference to the lateness of the hour in the east, we will probably run another ten minutes for those and try to give you shorter answers, and no follow ups I apologize. I just want to get as many people a chance as possible.

Operator

Your next question comes from Craig Siegenthaler - Credit Suisse.

Craig Siegenthaler- Credit Suisse

We track the level of restructured loans which are part of NPAs. I didn’t see in the press release and I was hoping you can provide us with that number, which is about $15 million last quarter and then also if you look at that portion of restructured loans which were not part of NPAs, which are part of accruing loans we just give us that number too.

Harris Simmons

I don’t think we have that with us. Maybe James can try to get back to you after hours with that number.

Operator

Your next question comes from Dave Rochester - FBR Capital Markets.

Dave Rochester – FBR Capital Markets

Just real quick, for the CRE and commercial construction appraisals excluding the land loans you’ve had to redo over the past quarter, can you give us a rough sense for how much of a devaluation you are seeing for the original appraisal values?

Harris Simmons

I should, it varies very widely by geography, like the most significant declines are in Las Vegas area, much less so in Colorado and Texas at this stage. Jerry, do you want to comment at all on that?

Jerry Dent

No, your comment is probably the best comment and that it varies so much by geography and especially by type of product as well. You get into some of the most hard hit markets and you are seeing 60% and 70% decline in the land and not near that in completed product, but it really just varies.

Harris Simmons

I saw some statistics this morning on CMBS outstanding. Moody’s estimating the current loan to values are probably 20%. The implied valuable land rather of the loans is probably something collateral. It’s probably down 20% something like that from a peak.

Doyle Arnold

That would be income producing commercial.

Harris Simmons

So, result of higher cap rates and higher vacancies etc. I think we have not generally seen that so far. We’ve seen in our term commercial real estate portfolio. The charge-offs in the quarter were $10.8 million. That’s on a $6.8 billion portfolio. So, that’s still running pretty good shape, its 64 basis points and it’s higher than it has been, but it’s not out of control yet.

Dave Rochester – FBR Capital Markets

Where are the strongest markets that you’ve seen?

Doyle Arnold

Probably Utah, Texas still. I think the strongest.

Harris Simmons

Weakest would be Las Vegas and probably Southern California?

Jerry Dent

Colorado has held up pretty well.

Harris Simmons

What has held up, Jerry?

Jerry Dent

Colorado.

Operator

Your next question comes from Jason Goldberg - Barclays Capital.

Jason Goldberg - Barclays Capital

In looking at a lot of the other banks that have reported so far or pre-announced, I guess your CDO marks, I guess still remain, I guess well above some of the others and even just looking at you kind of when you’re at the peak PIK mark even above some other banks and higher portfolios. Just maybe kind of what’s different in your both vis-à-vis, all these others?

James Abbott

It’s best to say, I can’t actually tell you what they’ve done. I can tell you we have done and we have followed the general accounting principles and we have the in text model and we have modeled each of these and our assumptions have been vetted not only with the regulators, but also with our outside accountants and we’re quite comfortable with the level 3 pricing that we’re using.

Doyle Arnold

We tried to go through this before with all of our detailed assumptions and we’re just going to stick with our methodology. We’re not doing the fire sale, get it all behind us, take the deep distressed mark approach to this, which as James said trying to follow the consistent methodology and that’s what we’re going to do.

Jason Goldberg - Barclays Capital

Just unrelated, I think in your comments you made the point that in terms of construction charge-offs, there’s been a migration away from residential to more commercial? Is that plus out of it?

Harris Simmons

Well, at this quarter, yes there were just over $170 million of the total charge-offs were in real estate construction and about two thirds of that was commercial and about one third of it almost exactly two thirds/one third was residential.

Probably if you try to break it down by geography, over half of the commercial construction, in fact about 60% of it, those charge-offs came from Nevada, mostly Southern Nevada. Over half of the residential construction and these both include A&D loans, came from Arizona and the rest of it was all kind of spread around.

Jason Goldberg - Barclays Capital

What would you say that two thirds/one third mix was last quarter?

Harris Simmons

I don’t know, unfortunately don’t have that. I think it has been shifting probably from residential to commercial overtime, but I don’t have the last couple of quarters here. I’m sorry.

James Abbott

It had been, I think quite heavily toward residential back a couple of quarters. I think what you’re seeing is consistent with what we suggested was likely to happen and that is, that you could see a cresting of the residential piece and the broadening of the loss in the commercial construction, and C&I portfolios for that matter.

Operator

Your next question comes from John Hecht - JMP Securities.

John Hecht - JMP Securities

Doyle, you referred to observing CRE credit migration issues during the quarter and that’s in part what drove the increase in the loss provision you had loss reserve. Can you give us a little more color and I guess that would be in a sense of, was the rate of change accelerating throughout the quarter in terms of migration issues? Were these cash flow derived credit issues, meaning vacancy related credit issues? Or were they mostly related to the property value?

Doyle Arnold

I think you misinterpreted what I said and I can understand given the words I said how you did that. It’s my fault, not yours. I didn’t say credit migration, I said loss migration.

I mean there was some deterioration in migration from pass grade to criticized, from criticized to classified et cetera, but when I use the word migration, what I was really referring to is loss estimation models that try to look at how much of substandard loans, how much of doubtful loans, how much of pass grade loans et cetera migrated to loss over various periods of time.

What I was referring to was that the actual loss realization in our CRE credits for any given level of classification had increased over what we had previously been modeling, based on newer loss data.

Intuitively you would expect that. Early in the down cycle, with our conservative underwriting, with 50% loan to value ratios on land and 65% to 70% on completed properties et cetera, and with strong borrowers you have got collateral cushion and you’ve got borrower support coming out of pocket to re-margin loans.

Therefore your loss content for any particular level of stress in property value decline is mitigated by those things, but you get, as we are in Nevada and Arizona, maybe more so than other areas, deep into a protracted cycle, the cushion you have against loss from both of those sources begins to erode. So you expect to see the loss content in some other more distressed markets creep up and that’s what I was trying to describe.

John Hecht - JMP Securities

Okay. That makes with severity rates are higher, understood. I wanted to know on the prior question, can you give us a sense on the color of the pace of loans going into the classified asset category during the quarter?

Doyle Arnold

Continued to increase overall, but as I say, in moderation in Texas, Nevada, and Arizona, but I don’t have data on kind of percentage rates of increases, et cetera.

John Hecht - JMP Securities

Okay. Places like California, Colorado still seeing increases?

Doyle Arnold

Yes, but off of probably lower levels than we were seeing on a relative basis, particularly in Arizona and Nevada.

Operator

Your next question comes from Jennifer Demba - SunTrust Robinson Humphrey.

Jennifer Demba - SunTrust Robinson Humphrey

How much OREO did you guys sell during the second quarter and also during the first quarter?

Doyle Arnold

I don’t know if I brought that. Do we have that?

Jerry Dent

I don’t have that number either.

Doyle Arnold

We may have to get back to you, Jennifer. Sorry. There have been significant in and outs, but I don’t have, in both quarters, but we don’t have that data with us.

Jennifer Demba - SunTrust Robinson Humphrey

Okay and I think this question has been asked a couple of different ways. So forgive me if I am being redundant here, but it seems like most of your issues today are in terms of problem loans are still in Nevada and Arizona.

Doyle Arnold

That’s where the losses came from today. I’m not saying that once we get through those we are done.

Jennifer Demba - SunTrust Robinson Humphrey

Okay, but as of today that is still the case.

Doyle Arnold

That’s what would happen, but yes.

Jennifer Demba - SunTrust Robinson Humphrey

What markets give you the most concern as we move forward?

Doyle Arnold

All of them. It is still a pretty crummy economy out there and we are seeing deterioration in all of it. I think it’s just really hard to say. We’re going to start seeing we haven’t had any losses in the Pacific Northwest in two or three years. We’re going to have some over the next year because they have got declining real estate conditions up there.

We are seeing deterioration in commercial nonresidential real estate in Southern California. There’s softness in a few oil service borrowers in Texas, our energy service borrowers, as well as dramatic slowdown in the rate of housing development in Texas, which will probably cause some A&D losses there, but there’s nothing yet that probably rises to the same loss content level that we’ve seen in Arizona and Nevada not even close yet, at least yet, but we do expect them to rise in the other markets.

Operator

Your next question comes from Brian Klock - KBW.

Brian Klock - KBW

I will ask just one two part question. Do you know what the deferred tax asset is at the end of the second quarter?

Doyle Arnold

No. It is not disallowed, but I don’t know what it is.

Brian Klock - KBW

I guess with the large provision in the quarter, if we back out all of the noise and you just cover the charge-offs, its still be I think in a net operating loss position I guess maybe think about or how about…

Harris Simmons

That’s true, because charge-offs were 350 and we said pre-tax pre-provision run rate is about 250 to 275 in a quarter.

Brian Klock - KBW

So I guess if you think about that, do we have to think about when would you start to return to profitability and should we think that there’s a possibility of impairments or valuation allowances on the DTA in the future?

Harris Simmons

I think sustained profitability is not likely this year, but may well come in 2010. DTA is an issue we have to manage and but we have levers to pull to manage that. So, it’s going to be very difficult. I can’t say we can avoid absolutely any haircuts for bank level capital purposes, et cetera, but there are things that we might be able to do to manage that to somewhat so it is going to be hard for you to model what actions we might be able to do.

Brian Klock - KBW

So for tax planning strategies you can sell assets it time of the generate taxable gains.

Harris Simmons

Realize losses. We are keenly aware of the issue. That’s part of our task is to try to manage that as best we can.

Operator

Your next question comes from Bob Patten - Morgan Keegan.

Bob Patten - Morgan Keegan

Welcome, Jimmy. You traded 20 earnings in for one. Good move. A couple of quick questions one, Doyle and Harris, based on what you are seeing with increased pressure to food products into the PPIP, do you see any opportunity on the TRUP CDO portfolio you guys have based on what you are hearing in dialogue?

Harris Simmons

Well, I think it is way premature to the best of my knowledge, the only thing that’s happened so far is the initial eight or so PPIP asset guys have been announced. To my knowledge, none of them have raised the equity or done anything else.

I have heard from one saying have you got anything to sell and I asked them, have you got any money to buy and they said well not yet and I said why don’t you call me back in a quarter or two when you know what you have got and what you’re interested in and that’s literally all that has taken place so far.

We are not feeling pressure to take advantage if that’s the right word of PPIP at this point. It is something we will look at in a couple of quarters when it becomes more tangible.

Doyle Arnold

I think if we are obviously working through a lot of all banks are, through an inventory of problem. Assets we are getting a lot of things resolved. There’s actually quite a lot of movement in and out of the problem asset category. To the extent PPIP helps, that is great and if it doesn’t, we will continue doing what we are doing.

Harris Simmons

As we mentioned so far at least where we tried to do any kind of a private bulk sale, the discounts have been far worse than what we have been able to realize by working the same pool of assets one at a time, the old fashioned way.

Bob Patten - Morgan Keegan

You guys picked up a couple of billion in the liabilities and assets from the FDIC process. It would seem to me that the FDIC would at least make sure bidders are capable and have adequate capital levels before they get themselves deeper into a hole so to speak. Yet the market is convinced that you guys don’t have enough capital. Is there some disconnect here that the market’s having that the regulators aren’t?

Harris Simmons

I won’t comment, what can I say? Both sides sort of speak for themselves. As I say, I think our biggest concern is that I mean, the interesting thing is that the transactions as we’ve tried to describe here that we’re able to do today are essentially self capitalizing. So that’s not the issue.

From my perspective it’s more one of how much bandwidth this management have and I think that’s our concern, I think that’s actually probably the question we get asked more by the regulators. How much more of this can you take on? We’re not sure you should.

Doyle Arnold

I think it’s safe to say that, the deals we’ve done thus far they I think, they’ve been quite pleased with the way we’ve been managing assets.

Operator

Your next question comes from Greg Ketron - Citigroup.

Greg Ketron - Citigroup

I’ll try to make it a quick question. As you look at the gains that you were able to take on the debt termination of the swaps, which was $400 million plus, somewhat correspond but not directly related to understand to the excess provisioning that you put in.

In kind of taking through the reserve build that you took this quarter, how much of that would you say is related to maybe actual value declines that you have seen on collateral that’s in house, maybe has migrated or has shown up on the watch list versus maybe trying to be conservative in anticipating an additional value declines in the future?

Doyle Arnold

Well, I’ll make two comments. One is the gain on the terminated swap was only $211 million, I believe was the number. The rest of it was, I’m sorry, $161 million. The rest was effectively marking the debt-to-market. I just don’t know what more I can say about what drove the provisioning.

I have tried to describe the three main drivers. I’ve said before, we didn’t try to and I don’t have them with me any numbers that would allow me to disaggregate it specifically for you into what the components are. There were three. I tried to describe all three of them.

Greg Ketron - Citigroup

Okay. Maybe if I could ask it in a different way. You guys have made an excellent presentation in the past that your commercial real estate loan-to-values and you’ve alluded to those on the call already, it was like 50%; and other parts of the commercial real estate portfolio were 65%.

When you have a very problematic situation where you’re looking at either applying reserves or doing a charge-off, it appeared you have a lot of equity to deal with initially, when you get in that situation. How much are you typically going through the equity at this point? Can you give us an idea of how much; have the charge at 50% or 60%?

Harris Simmons

Well, as I mentioned I think in the cases of Arizona and Nevada, we’ve in a lot of properties have had particularly non-income producing properties we’ve chewed through most or all of the equity and further property declines lead to almost dollar for dollar charge-offs in those situations.

That’s not true across the Board in all geographies that are in different, parts of the credit cycle or didn’t have property values as inflated by bubble pricing as those two, which may have falsely, not falsely, but just kind of led to an illusion of lower loan-to-values than might have really been there. Again, I mean…

Doyle Arnold

When we have collateral dependent credits here, subject to the FAS 114 analysis, we’re charging down to typically somewhere around 88%, in some cases as little as 80% of the appraised value of the new appraisal.

Harris Simmons

We are doing that in Arizona and Nevada specifically, taking a 20% haircut to the last appraisal.

Doyle Arnold

As to the loan to values, what we show are averages and there were some caveats because some of those are old appraisals done at the inception of the deal. The losses are quite clearly coming from the tails and not from the averages. Always have to remember that.

James Abbott

It is now, it is now about 7:00 in the East, so I think we are going to wrap this up now. I really am conscious of the time demands on all of you. We have allowed this to go over. I hope you don’t mind that I was a complicated quarter. We wanted to give you as much information as possible.

So, let me wrap up by saying thanks so much for your attention and we will see some of you at conferences and IR trips in the quarter and talk to all of you again three months from now.

Operator

Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect and have a great day.

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Source: Zions Bancorporation Q2 2009 Earnings Call Transcript
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