Zions (ZION) Up 3% as Q3 Earnings & Revenues Beat Estimates

Shares of Zions Bancorporation ZION gained 2.9% following the release of its third-quarter 2018 results, after the market closed. Earnings of $1.04 per share handily surpassed the Zacks Consensus Estimate of 96 cents. Also, the figure compares favorably with the prior-year quarter’s earnings of 72 cents.

Results, to a great extent, benefited from improvement in net interest income, provision benefit and stable operating expenses. Also, the quarter witnessed a strong balance sheet position. However, higher adjusted non-interest expenses and decline in non-interest income were the headwinds.

Net income attributable to common shareholders was $215 million, indicating a jump of 41% year over year.

Revenues Improve, Costs Stable

Net revenues came in at $701 million, increasing 9% year over year. Also, the top line beat the Zacks Consensus Estimate of $699.9 million.

Net interest income was $565 million, up 8% 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 rose 18 basis points (bps) year over year to 3.63%.

Non-interest income amounted to $136 million, down 2% from the year-ago quarter. The decrease was mainly due to lower other revenues as well as securities losses.

Adjusted non-interest expenses were relatively stable year over year at $416 million.

Efficiency ratio was 58.8%, up from 62.3% reported a year ago. A fall in efficiency ratio indicates improvement in profitability.

Strong Balance Sheet

As of Sep 30, 2018, total net loans came in at $45.3 billion, up 1% from the end of the prior quarter. Total deposits were relatively stable sequentially at $53.8 billion.

Credit Quality Improves

The ratio of non-performing assets to loans and leases as well as other real estate owned decreased 42 bps year over year to 0.64%. Also, net loan and lease recoveries were $1 million against charge-offs of $8 million in the prior-year quarter.

However, provisions for credit losses were a benefit of $11 millioncompared with provision of $1 million in the year-ago quarter. Provision benefit largely indicates net recoveries and ongoing improvements of credit quality metrics in the entire loan portfolio.

Capital Ratios Deteriorate, Profitability Ratios Improve

Tier 1 leverage ratio was 10.5% as of Sep 30, 2018, compared with 10.6% in the prior year quarter. Tier 1 risk-based capital ratio was 13.1%, down from 13.3% in the year-ago quarter.

At the end of the July-September quarter, return on average assets was 1.33%, up from 0.97% as of Sep 30, 2017. Also, as of Sep 30, 2018, tangible return on average tangible common equity was 14.2%, up from 9.8% a year ago.

Share Repurchases

During the reported quarter, Zions repurchased $185 million worth of shares.

Our Viewpoint

Zions’ revenue growth looks encouraging. We are also impressed with its ability to increase net interest income. Further, initiatives undertaken to simplify operation and the exemption from annual stress tests provide the bank financial flexibility to some extent.

However, elevated expense levels are likely to hurt bottom-line growth. Also, the company's significant exposure to risky loan portfolios is expected to dent its financials and hence remains a major concern.

Zions Bancorporation Price, Consensus and EPS Surprise

 

Zions Bancorporation Price, Consensus and EPS Surprise | 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.

Performances and Upcoming Release

First Republic Bank’s FRC third-quarter 2018 earnings per share came in at $1.19, missing the Zacks Consensus Estimate by a penny. However, the reported figure increased 1.7% from the year-ago tally.

East West Bancorp’s EWBC third-quarter 2018 adjusted earnings per share of $1.17 surpassed the Zacks Consensus Estimate of $1.15. Further, the figure compares favorably with the prior-year quarter’s adjusted earnings of 91 cents per share.

SVB Financial Group SIVB is slated to report results on Oct 25.

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