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Zions Bancorp shareholders shouldn't expect the company to raise its paltry penny-a-share dividend this year or anticipate its share price will rise much higher soon, CEO Harris Simmons said Friday.
"We know that's an issue for shareholders," Simmons said of the dividend at the regional bank's annual meeting at its headquarters in downtown Salt Lake City. As recently as mid-2008, the dividend was 43 cents a share. But as the financial crisis hit, Zions was forced to slash the quarterly payout to conserve cash.
Simmons stopped short of explicitly promising an increase next year. But he said that after Zions finishes repaying $1.4 billion in Trouble Asset Relief Program funds to the government by Dec. 31, the bank "probably can find the ability to start raising [the dividend] next year.
"But we must get TARP repaid first," he said.
As to the stock, which has sunk back to 1996 levels, Simmons said he was "hopeful" that it might go substantially higher. But "there are limits" to how high it can go, he added, citing several factors:
• To help keep capital reserves high, Zions has issued 75 million shares of common stock over the last four year. That has decreased competition for shares and kept a lid on their price.
• Record low interest rates have undercut the bank's net interest income, which is its biggest source of income. Net interest income is the difference between revenue from loans and what it pays on interest-bearing deposit accounts.
• Demand for new loans has been sluggish and isn't expected to pick up substantially soon. In large part, that's because many of Zions' commercial customers have accumulated large cash reserves since the onset of the recession in 2007. As a result, they are using their own funds to finance growth instead of turning to the bank.
• Finally, increasing regulations by the federal government are undercutting the bank's earnings potential. The Durbin Amendment, put into law in 2010, gave the Federal Reserve the power to regulate debit card interchange fees. It cost Zions $35 million last year, Simmons said.
An interchange fee is the charge assessed on a merchant each time a customer swipes a debit or credit card. Part of the fee goes to the card network; the rest goes to the bank that issued the card.
The meeting otherwise was routine. Shareholder Gerald Armstrong's reprised a proposal to withdraw bonuses for executives linked to poor performance and it was rejected again.
Simmons was re-elected to a one-year term on the board of directors, as were Jerry Atkin, R.D. Cash, Patricia Frobes, J. David Heaney, Roger Porter, Stephen Quinn, L.E. Simmons, Shelley Thomas Williams and Steven Wheelwright.