Accounting for Failed-Bank Deals? Good Luck with That

Zions Bancorp. (ZION) did the last of its failed-bank deals years ago, but it's still paying for some of them.

Certain loan prepayments in the first quarter prompted the Salt Lake City company to record nearly $10 million of additional amortization expenses tied to its loss-sharing arrangements with the Federal Deposit Insurance Corp.

The item, similar to a $32 million charge announced last week by Iberiabank (IBKC) in Lafayette, La., highlighted the maddening complexities of accounting for FDIC deals.

The prepayments, which are from FDIC acquisitions of banks in California, increased revenue but also added expenses, James Abbott, the $53.9 billion-asset company's investor relations executive, in trying to answer a flurry of questions from analysts during Zions' quarterly conference call Monday.

"One of the major drivers behind it is people are finally getting back to neutral or above water on their mortgages, and are able to prepay them and get it financed at a lower rate," Abbott said. "We do have another year or so of indemnification asset expense to go."

This was followed up by another question and discussion trying to quantify the effect of prepayments for the coming months.

"The strongest argument for never doing an assisted acquisition again is accounting for it," Doyle Arnold, the chief financial officer at Zions, joked during the call. "And the second strongest argument is explaining the accounting for it, I think. It's ridiculous."

Zions was last involved in a failed-bank deal when one of its units, California Bank & Trust, assumed some deposits and all of the assets of Vineyard Bank in Corona, Calif., in 2009. That was one of three failed-bank deals completed that year by units at Zions — two in California, one in Nevada.

Despite the accounting headaches, Arnold was still happy with the results. He noted that the deals brought in common equity without Zions issuing additional shares.

"It's performed better than we modeled in getting to that number, but it's devilishly confusing," he added.

Zions reported Monday that its first-quarter profits tripled from a year earlier, to $88.3 million, as it recorded a credit for its loan-loss provision. Its earnings per share of 48 cents beat analysts' expectations by nine cents.

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