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Zions (ZION) Q2 Earnings Miss Estimates, Expenses Increase

Zacks Equity Research

Zions Bancorporation’s ZION second-quarter 2019 earnings per share of 99 cents missed the Zacks Consensus Estimate of $1.09. Nevertheless, the figure compared favorably with the prior-year quarter’s earnings of 89 cents.

Results were adversely affected by an increase in expenses and lower non-interest income. Moreover, the company recorded higher provision for credit losses during the quarter, which was a negative factor. However, rise in net interest income (NII) was a tailwind. Also, the balance sheet position remained strong.

Net income attributable to common shareholders was $189 million, up 1.1% year over year.

Revenues Improve, Costs Rise

Net revenues for the quarter under review were $701 million, up 2.2% year over year. However, the top line lagged the Zacks Consensus Estimate of $723.2 million.

NII was $569 million, up 3.8% from the prior-year quarter. This rise was primarily attributable to loan growth, and increase in interest and fees on loans, partially offset by higher interest expenses. However, net interest margin contracted 2 basis points (bps) year over year to 3.54%.

Non-interest income amounted to $132 million, down 4.3% from the year-ago quarter. This downside was primarily due to a fall in dividends and other investment income. Moreover, the company recorded net securities losses in the quarter against net securities gains reported in the year-ago quarter.

Adjusted non-interest expenses were $423 million, up nearly 1% from the prior-year quarter.

Efficiency ratio was 59%, down from 60.9% reported a year ago. A fall in efficiency ratio indicates improvement in profitability.

Strong Balance Sheet

As of Jun 30, 2019, net loans held for investment were $48.1 billion, up from $47.1 billion recorded at the end of the prior quarter. Total deposits were $54.3 billion, down marginally from $54.5 billion recorded at the end of the first quarter.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 25 bps year over year to 0.52%.

However, net loan and lease charge-offs were $14 million at the end of the reported quarter against recoveries of $12 million in the prior-year quarter. Further, provision for credit losses was $21 million, up 75% from the year-earlier quarter.

Capital Ratios Deteriorate, Profitability Ratios Were Mixed

Tier 1 leverage ratio was 9.5% as of Jun 30, 2019, compared with 10.5% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 11.8%, down from 13.3% in the year-ago quarter.

At the end of the second quarter, return on average assets was 1.14%, down from 1.19% as of Jun 30, 2018. However, as of Jun 30, 2019, return on average tangible common equity was 12.7%, up from 12.4% witnessed a year earlier.

Share Repurchases

During the quarter, Zions repurchased $275 million worth of shares.

Our Viewpoint

Zions remains well positioned for top-line growth, supported by the consistent rise in loans and deposits along with its efforts to improve operating efficiency. Moreover, given a solid balance sheet position, it is expected to continue with its efficient capital deployments, thereby enhancing shareholder value. However, elevated expense levels (as seen in the second quarter) will likely hamper bottom-line growth. Moreover, the company's significant exposure toward risky loan portfolios remains a concern.

Zions Bancorporation Price, Consensus and EPS Surprise
 

Zions Bancorporation Price, Consensus and EPS Surprise

Zions Bancorporation price-consensus-eps-surprise-chart | Zions Bancorporation Quote

Currently, Zions carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Washington Federal’s WAFD third-quarter fiscal 2019 (ended Jun 30) earnings were 67 cents per share, surpassing the Zacks Consensus Estimate of 64 cents. The figure reflected year-over-year growth of 10%.

Hancock Whitney Corporation’s HWC second-quarter 2019 operating earnings per share of $1.01 were in line with the Zacks Consensus Estimate. The bottom line was 5.2% higher than the year-ago quarter figure.

Ally Financial Inc.’s ALLY second-quarter 2019 adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Further, the bottom line compared favorably with 83 cents recorded in the prior-year quarter.

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