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Zions (ZION) Up 6.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Zions (ZION). Shares have added about 6.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zions due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Zions' Q4 Earnings Beat Estimates on Higher Revenues

Zions Bancorporation’s fourth-quarter 2018 earnings per share of $1.08 surpassed the Zacks Consensus Estimate of $1.06. Also, the figure increased 100% from the prior-year quarter’s earnings of 54 cents.

Results primarily benefited from improvement in net revenues. Balance-sheet position was also strong during the quarter. However, higher adjusted non-interest expenses and provision for credit losses were the headwinds.

Net income attributable to common shareholders for the quarter was $217 million, up 90.4% year over year.

Net income for 2018 attributable to common shareholders was $850 million or $4.08 per share compared with $550 million or $2.60 per share in the prior year.


Revenues Improve, Costs Rise

Net revenues for the quarter came in at $716 million, increasing 7.7% year over year. The top line also beat the Zacks Consensus Estimate of $712.5 million.

Net revenues for 2018 came in at $2.78 billion, increasing 6.6% year over year. The figure came in line with the Zacks Consensus Estimate.

Net interest income for the quarter was $576 million, up 9.5% from the prior-year quarter. The rise was primarily attributable to loan growth and increase in interest and fees on loans, partially offset by higher interest expenses. Further, net interest margin expanded 22 basis points (bps) year over year to 3.67%.

Non-interest income amounted to $140 million, up nearly 1% from the year-ago quarter. The upside mainly stemmed from higher other service charges, commissions and fees.

Adjusted non-interest expenses were $418 million, up nearly 1% from the prior-year quarter.

Efficiency ratio was 57.8%, down from 61.6% reported a year ago. A fall in efficiency ratio indicates improvement in profitability.

Loans & Deposits Rise

As of Dec 31, 2018, total net loans came in at $46.2 billion, up 2% from the end of the prior quarter. Total deposits came in at $54.1 billion, up marginally from the third-quarter end.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 38 bps year over year to 0.55%. Moreover, net loan and lease recoveries were $8 million against charge-offs of $12 million in the prior-year quarter.

Provisions for credit losses were $6 million compared to a benefit of $12 million in the year-earlier quarter.

Capital Ratios Deteriorate, Profitability Ratios Improve

Tier 1 leverage ratio was 10.3% as of Dec 31, 2018, compared with 10.5% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 12.7%, down from 13.2% in the year-ago quarter.

At the end of the fourth quarter, return on average assets was 1.34%, up from 0.74% as of Dec 31, 2017. Also, as of Dec 31, 2018, tangible return on average tangible common equity was 14.5%, up from 7.4% witnessed as of Dec 31, 2017.

Share Repurchases

During the quarter, Zions repurchased $250 million worth of shares.


Management expects pre-provision net revenue growth rate to be in high single digits.

Net interest income is expected to increase moderately in the next 12 months, driven by benefits from the December 2018 rate hike with assumptions of no additional rate increases and slight decline in securities portfolio balances.

In case of no further interest rate hikes, NIM is expected to remain stable over the near term, driven by rise in non-interest bearing deposits.

Customer-related fees (excludes securities gains, dividends) are expected to increase slightly.

Loan balance is anticipated to marginally rise over the next 12 months. This is likely to be driven by moderate to strong growth in 1-4 family, municipal, C&I and owner-occupied loans as well as stable to moderate increase in Oil & Gas and CRE loans. These are expected to be partially offset by moderate decline in national real estate loans.

Adjusted non-interest expenses in 2019 are expected to increase at low-single digit rate on a year-over-year basis.

The company projects a significant reduction in FDIC insurance expenses.

The company expects to achieve an efficiency ratio of below 60% for 2019, excluding the possible benefits of rate hikes.

Effective tax rate is anticipated to be approximately 23% for 2019.

Increase in loan loss provisions is projected to be modest in the next 12 months.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Zions has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zions has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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