On Monday, Zions Bancorporation (ZION) reported a fourth quarter 2009 net loss of $176.5 million or $1.26 per share, compared to a net loss of $179.5 million or $1.41 in the prior quarter and a net income of $498.1 million or $4.37 in the prior-year quarter. Results were substantially lower than the Zacks Consensus Estimated loss of $1.66.
Results were helped by declining loan loss provision and net loan charge-offs, increase in average non-interest bearing demand deposits and strong pricing on new loans. However, these were partially offset by a marginal increase in non-performing assets, credit-related impairment losses on CDO securities and continued weakness in loan demand. Tax-equivalent net interest income for the quarter decreased 3.2% sequentially and 7.4% year-over-year to $462.6 million. Net Interest Margin (NIM) declined 10 bps sequentially and 29 bps on a year-over-year basis to 3.81%. The decline in NIM during the quarter was driven primarily by 0.11% for the discount amortization on the modified subordinated debt and an additional 0.17% for the accelerated discount amortization due to the conversion of $35.7 million of modified subordinated debt.
Total loans at the end of the quarter decreased 3.6% year-over-year to $40.2 billion. Average total deposits for the quarter increased 8.5% year-over-year to $42.9 billion. Average non-interest-bearing deposits increased 25.3% sequentially, on an annualized basis, to $12.1 billion. Non-interest income was $65.9 million compared to $270.7 million in the sequential quarter and a loss of $82.3 million in the prior-year quarter. The sequential decline was attributable to unusual items such as higher security impairment losses and lower fair value and non-hedge derivative income in the reported quarter and acquisition-related gains of $146.2 million in the third quarter. These declines were partially offset by the $15.2 million gain from the $40 million debt modification initiated in the second quarter of 2009. Non-interest expense increased 1.5% sequentially and 10.8% year-over-year to $441.1 million. Credit metrics deteriorated drastically during the quarter, with non-performing assets ending the period at 5.93% of related assets (up 53 bps sequentially and 322 bps year-over-year) while net charge-offs deteriorated significantly to 2.98% of average loans (down 81 bps sequentially but up 126 bps year-over-year). Provision for loan losses was $390.7 million for the reported quarter, down 31.0% sequentially and 48.8% year-over-year. Tangible common equity ratio increased to 6.12% from 5.76% sequentially and 5.89% year-over-year. The sequential increase was primarily due to the impact of equity transactions and secondarily to reductions in the balance sheet. The annualized return on average assets was negative 1.37% in the reported quarter, compared to negative 1.15% in the prior quarter and 3.52% in the prior-year quarter.
For full year 2009, Zions reported a net loss of $1.23 billion or $9.92 per share compared to a loss of $290.7 million or $2.68. Tax-equivalent net interest income decreased 3.7% year-over-year to $1.92 billion. Non-interest expense increased 13.3% year-over-year to $1.67 billion.
While Zions’ net interest margin and deposit growth remain satisfactory, credit quality continues to deteriorate, necessitating high levels of loss provisions. The company has been successful in enhancing capital ratios and making efforts on the cost control front, but the credit ratings agencies appear to be unimpressed. Ongoing weakness in the residential real estate markets, where the company has a significant exposure, continues to hurt results.
Dividend Update
During the reported quarter, Zions’ board declared a regular quarterly dividend of $0.01 per common share. The dividend was paid on Nov 20, 2009 to shareholders on record as on Nov 12, 2009.
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