Zions Bancorp. (ZION) reported fourth quarter 2010 loss of 25 cents per share, beating the Zacks Consensus Estimate of a loss of 37 cents and also improving upon the prior quarter's loss of 30 cents.
However, including non-cash effects of the discount amortization on convertible subordinated debt and additional accretion on acquired loans, Zions reported a fourth quarter net loss of $110.3 million or 62 cents per share. This compares unfavorably with the prior quarter net loss of $80.5 million or 47 cents per share but improves upon the prior year quarter's net loss of $176.5 million or $1.26 per share.
Results for the reported quarter benefited from an increase in non-interest income, decline in non-interest expense and improvement in credit quality. However, decline in net interest income and a continued weakness in loan demand were the downside.
Quarterly Performance
Zions reported total revenue of $520.1 million, down from $620.1 million in the prior quarter and $672.0 million in the year-ago quarter. Total revenue also missed the Zacks Consensus Estimate of $556.0 million.
Net interest income for the reported quarter slashed 9.9% from the prior quarter and 10.9% year over year to $406.9 million. The decline was mainly due to a fall in interest and fees on loans. Net interest margin (NIM) fell 35 basis points (bps) from the prior quarter and 32 bps on a year-over-year basis to 3.49%. The sequential decrease in NIM was primarily due to the accelerated discount amortization.
Non-interest income was $113.2 million compared with $110.2 million in the prior quarter and $65.9 million in the prior-year quarter.
Non-interest expense fell 2.8% from the prior quarter but increased 0.5% year over year to $443.4 million. The sequential decline was mainly due to a $18.8 million fall in other real estate expense, which was partly offset by a $12.7 million rise in provision for unfunded lending commitments.
As a result of continued weakness in loan demand, total loans at the end of the quarter decreased 2.1% from the prior quarter and 8.8% year over year to $36.9 billion. Average total deposits for the quarter fell 1.2% from the prior quarter to $41.2 billion, as the company actively worked to reduce excess funding. Average non-interest bearing deposits also decreased 1.3% from the prior quarter on an annualized basis to $13.6 billion.
Credit Quality
Credit quality improved during the quarter, with ratio of nonperforming lending-related assets to net loans and leases and other real estate owned at 4.91% (down 110 bps from the prior quarter and 188 bps year over year). Provision for loan losses of $173.2 million was down 6.2% from the prior quarter and 55.7% year over year. Net charge-offs were 2.71% of average loans (up 21 bps from the prior quarter but down 16 bps year over year).
Profitability and Capital Ratios
Tangible common equity ratio fell to 6.99% from 7.03% in the prior quarter but improved from 6.12% in the year-ago quarter.
During the fourth quarter, Zions increased its Tier 1 capital through issuances of common stock equity. As a result, as of December 31, 2010, Tier 1 leverage ratio and Tier 1 risk-based capital ratio improved to 12.53% (from 12.00% as of September 30, 2010) and 15.01% (from 13.97% as of September 30, 2010), respectively.
The annualized return on average assets was negative 0.56% in the reported quarter as compared with negative 0.36% in the prior quarter and 1.37% in the prior-year quarter. Book value per share as of December 31, 2010 was $25.12 compared with $26.07 as of September 30, 2010 and $27.85 as of December 31, 2009.
Our Take
Though we are impressed by Zions' successful enhancement of capital ratios and believe that the efforts on the cost control front will drive future growth, the near-term outlook remains cautious due to weak loan demand, constant margin pressure, high credit-related costs and the impact of legal and regulatory challenges.
Last week, Zions' competitor, City National Corp. (CYN), reported better-than-expected fourth quarter 2010 earnings.
Zions currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the company's business model and fundamentals, we also maintain a long-term Neutral recommendation on the stock.
CITY NATIONAL (CYN): Free Stock Analysis Report
ZIONS BANCORP (ZION): Free Stock Analysis Report
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