DBRS Confirms Zions Bancorporation at A (low)

DBRS has today confirmed the ratings of Zions Bancorporation (Zions or the Company) as indicated below. The trends on all ratings remain Stable. The rating action followed a detailed review of the Company’s operating results and credit fundamentals.

The ratings reflect the strong banking franchise that Zions has developed within a demographically favorable operating footprint in the southern and western United States. Moreover, the ratings incorporate the Company’s recurrent core earnings, strong net interest margin and superior asset quality. Elevated concentration risk in commercial real estate (CRE) and construction loans, as well as below peer median profitability metrics and capital ratios, are also incorporated in the assigned ratings level. Additionally, Zions is more heavily dependent on spread income than most of its similarly rated peers, which constrains profitability.

In 2006, Zions fully integrated the Amegy franchise with corresponding increases in its net income and assets. The Company achieved strong double-digit loan growth across its markets, but deposits grew at less than half the loan growth rate, a trend that is expected to continue in 2007. Zions was able to restore its tangible capital ratio, as targeted, to 6.51% at year end 2006, facilitating stock repurchases that had been suspended since the deal announcement in July 2005.

Zions focuses on small- and middle-market business, CRE and residential construction lending. The CRE and construction loan portfolio aggregating to 54% of loans and six times tangible common equity is considered by DBRS as elevated risk exposure to this potentially volatile asset class. Without owner-occupied properties, the exposure is a more manageable 36% of loans and four times tangible common equity. This concentration risk is largely mitigated by the Company’s excellent track record and disciplined underwriting standards requiring, among other things, large developer equity positions. Moreover, one-third of properties are owner-occupied, there is a high degree of loan granularity in the portfolio and less risky residential properties dominate the construction portfolio.

The Company ranks second in the Utah commercial bank deposit market with $8.4 billion (or 22% market share) and also has significant deposits in several Californian metropolitan areas, Houston, Texas as well as in Arizona and Nevada. DBRS expects that Zions’ near- to mid-term profitability will be driven by organic growth in its enviable high population growth footprint rather than through acquisition. Fee businesses, such as cash management, wealth management and automated check imaging and clearing, could potentially grow and diversify the currently modest levels of fee income.

The Company’s operations continue to produce growing and recurrent, but less robust than peer earning levels. Zions’ footprint in the fastest-growing areas of the United States, coupled with its local bank strategy, has proven to be a winning combination as reflected in recent performance traction.

DBRS notes that the current interest rate environment has continuously pressured U.S. bank margins. Zions, however, has maintained consistent, above-peer margins denoting strong loan pricing discipline coupled with adequate amounts of low-cost core deposit funding. DBRS believes that the Company will need to carefully manage its funding, given the fact that loan growth continues to outstrip deposit growth. Expense control continues to be an area of focus and the Company plans to complete a system conversion in its California subsidiary which should provide additional cost savings.

Headquartered in Salt Lake City, Zions is a multi-state financial services company operating eight distinct bank subsidiaries in ten western states. Zions was the 33rd largest bank holding company in the United States as measured by total assets at year end 2006.

Note:
All figures in U.S. dollars unless otherwise noted.