Analysis of Financial Institutions and Financial Instruments

1. If loans more than 90 days past due were treated as nonperforming, the ALL/NPL ratio for all the three types of loan would go down. The following table shows the three main loss reserve adequacy ratios for all the five years of data. From the table, we can see all the three ratios were in a declining trend since 2005. The ALL/NPL ratio for the commercial and real estate loans were very high in good times in the year 2005 and 2006, but it started to decrease at the inception of the financial crisis in 2007. Normally ALL/NPL should increase at the beginning of crisis due to the massive loan default, but we cannot see this in the table, indicating the procyclicality of Zions’ loan loss provisioning system. Besides, the ALL/NLCO ratio represents how many years of future charge-offs a bank has reserved for. We can see that the ratio was around 1.30 in 2009, which was a little higher than the industry average ratio of 1.0. However, when looking at the total allowance for loan losses numbers in 2008, which was $687 million, it was lower than the actual net charge-off amount of $1,175 million in 2009, indicating Zions’ inadequacy of loan losses allowance. For 2007, the loan loss allowance for commercial real estate loans was $215 million, but the net charge-off was $262 million, also showing that Zions did not have enough allowance to cover its real estate loan charge-off. For other loan items between 2005 and 2008, no such issue could be found. Regarding the PLL/NLCO ratio, we can see the ratio remained around 1.5 in 2009 for the three types of loans, and it was close to the industry average.

2. The following table is Zions’ allowance for loan loss and net charge-off amount from 2005 to 2009. We can see that the allowance for the commercial loans, real estate loans and consumer loan were $319 million, $291 million and $77 million respectively in 2008. On the other hand, the actual charge-off for the three types of loans were $322 million, $692 million and $161