Improvement in non-interest income and effective cost control
) first quarter 2014 adjusted earnings of 42 cents. The reported
figure was in line with the Zacks Consensus Estimate but compared
unfavorably with 49 cents earned in the prior-year quarter.
Results benefited from an increased non-interest income and a
nearly unchanged non-interest expense. Even so, these were
partially offset by a decline in net interest income (NII) and
lower benefit from provisions for loan losses. Further, while
credit quality was a mixed bag, both capital and profitability
ratios deteriorated. Nevertheless, growth in loans and deposits
were the tailwinds for the quarter.
After considering certain non-recurring items, Zions' net
earnings applicable to common shareholders was $76.2 million,
down from $88.3 million in the year-ago quarter.
Behind the Headlines
Zions' total revenue came in at $605.9 million, almost in line
with the prior-year quarter figure. Moreover, it surpassed the
Zacks Consensus Estimate of $544.0 million.
NII decreased marginally to $416.5 million from the prior-year
quarter figure of $418.1 million. Additionally, net interest
margin (NIM) was 3.31%, down 13 basis points (bps).
Non-interest income was $138.3 million, up 14.1% from the
year-ago quarter. The year over year improvement was mainly
attributable to an almost 100% decline in net impairment losses
on investment securities. This reflects the company's consistent
efforts to dispose risky collateralized debt obligation
securities (CDOs) from its portfolio.
Non-interest expenses increased slightly to $398.1 million from
$397.3 million in the prior-year quarter.
Total loans, including FDIC supported loans were $39.2 billion,
up 3.8% from the prior-year quarter. Total deposits increased
4.6% from the last year quarter to $46.5 billion.
Credit quality reflected a mixed scenario in the reported
quarter. The ratio of nonperforming lending-related assets to net
loans and leases as well as other real estate owned fell 68 bps
year over year to 1.12%. Further, net loans and lease charge-offs
decreased 55.7% from the prior-year quarter to $7.9 million as of
Mar 31, 2014.
The allowance for credit losses as a percentage of loans and
leases was 2.11%, down 39 bps year over year. However, benefit
from provisions for loan losses was $0.6 million, compared with
the recovery of $29.0 million in the year-ago quarter.
Profitability and Capital Ratios
Zions' capital ratios as well as profitability ratios
deteriorated. As of Mar 31, 2014, Tier 1 leverage ratio was
10.71% versus 11.55% in the previous quarter. Likewise, Tier 1
risk-based capital ratio was 13.16% compared with 14.08% as of
Mar 31, 2013.
Return on average assets was 0.74% against a return of 0.83% in
the prior-year quarter. Moreover, as of Mar 31, 2014, tangible
return on common equity was 6.96% compared with 9.37% in the
We believe that consistent improvement in loans and deposits as
well as efficient expense management will continue to drive
bottom line in the forthcoming quarters. Further, we foresee
improvement in credit quality as well.
However, a still low interest rate scenario will continue to
pressurize interest income as well as NIM. Moreover, we remain
concerned about Zions' asset-sensitive balance sheet, and the
stringent regulatory environment.
Currently, Zions carries a Zacks Rank #4 (Sell).
Performance of Other Banks
Among other banks,
Hancock Holding Company
) beat the Zacks Consensus Estimate. While Hancock delivered a
beat aided by a decline in expenses as well as lower provisions,
Associated Banc-Corp's earnings were driven by growth in interest
income and prudent cost control.
) reported an in line result, benefited from reduced expenses and
lower provisions for loan losses. However, the positives were
offset by a decline in top line.
ASSOC BANC CORP (ASBC): Free Stock Analysis
HANCOCK HLDG CO (HBHC): Free Stock Analysis
WESTAMER BANCP (WABC): Free Stock Analysis
ZIONS BANCORP (ZION): Free Stock Analysis
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