) reported adjusted first-quarter 2013 earnings of 49 cents per
share, easily surpassing the Zacks Consensus Estimate of 39
cents. This was also significantly ahead of the prior quarter
earnings of 21 cents.
Better-than-expected results were aided by growth in fee income
and a decline in operating expenses, partially offset by a fall
in net interest income. Moreover, continuously improving credit
quality, capital and profitable ratios as well as stable deposits
and loans were the tailwinds.
After considering certain non-recurring items, Zions' net income
applicable to common shareholders was $88.3 million or 48 cents
per share. This substantially surpassed the prior-quarter net
income of $35.6 million or 19 cents per share.
Behind the Headlines
Zions' total revenue was $606.0 million, up 9.7% from $552.4
million in the previous quarter. Moreover, the total revenue
surpassed the Zacks Consensus Estimate of $552.0 million.
Net interest income dropped 2.8% sequentially to $418.1 million.
Additionally, net interest margin dipped 3 basis points (bps)
from the last quarter's level to 3.44%. Both the decreases were
mainly due to lower yields on loan rate resetting, expiration of
in-the-money floors on loans and lower yields on
available-for-sale investment securities.
Non-interest income was $121.2 million, up significantly from
$54.2 million in the prior quarter. The increase was largely
attributable to lower net impairment losses on investment
Non-interest expenses reached $397.3 million, falling 2.4%
sequentially. The drop was primarily a result of reduction in the
provision for unfunded lending commitments and lower levels of
other real estate expenses and legal and professional services
costs. These were however partially offset by higher salaries and
Credit quality continued to improve during the reported quarter.
The ratio of nonperforming lending-related assets to net loans
and leases and other real estate owned dropped 16 bps
sequentially and 98 bps year over year to 1.80%.
Further, net loan and lease charge-offs were $17.8 million as of
Mar 31, 2013, down 5.4% from the prior quarter and 67.3% from the
year-ago quarter. Net charge-offs decreased mainly in the
consumer home equity credit line and term commercial real estate
The allowance for credit losses as a percentage of net loans and
leases was 2.50% at the end of the quarter, down 16 bps
sequentially and 53 bps year over year. Moreover, the recovery of
provision for loan losses was $29.0 million, compared with the
recovery of $10.4 million in the prior-quarter and a provision of
$15.7 million in the year-ago quarter.
Loans and Deposits
Loans and leases, excluding FDIC supported loans, were $37.3
billion, which nudged up from $37.1 billion in the previous
quarter. The increase largely came from commercial and
industrial, 1-4 family residential and construction, and land
development loans. Moreover, average loans and leases inched up
1.1% sequentially to $37.1 billion.
Average deposits fell 1.0% from the last quarter to $44.4
billion. The fall was primarily due to the lower level of average
non-interest bearing demand deposits.
Profitability and Capital Ratios
Zions' profitability and capital ratios showed improvement. As of
Mar 31, 2013, tier 1 leverage ratio was 11.56% versus 10.96% in
the previous quarter. Likewise, tier 1 risk-based capital ratio
was 14.04% compared with 13.38% as of Dec 31, 2012.
The annualized return on average assets grew to 0.83% from 0.43%
in the prior quarter. As of Mar 31, 2013, tangible common equity
ratio also improved to 9.37% from 4.07% in the prior quarter.
Last week, Zions announced a 300% hike in its quarterly cash
dividend. The company will now be paying a cash dividend of 4
cents per share. The dividend will be paid on May 30, to
shareholders of record as of May 23.
In March, the Federal Reserve notified Zions that it had approved
of certain strategic actions in its capital plan, which was
submitted with regard to the Fed's 2013 Capital Plan and Review.
The Fed approved all the strategic actions pertaining to the
reduction of cost and quantity of Zions' non-common capital as
well as term-debt financing. However, the company will be
required to re-submit its capital plan after making a few
We believe that Zions remains well positioned for loan and
deposit growth, given its well-diversified portfolio. Moreover,
the company's cost-control efforts will drive future growth.
Additionally, the recent dividend hike and the capital plan
approval will enhance investors' confidence in the stock.
However, we are concerned about the prevailing low interest rate
environment, sluggish economic growth, Zions' asset-sensitive
balance sheet, losses related to CDO exposure and regulatory
Zions currently carries a Zacks Rank #3 (Hold). Other west banks
that are worth considering include
BofI Holding, Inc.
Western Alliance Bancorporation
). All these carry a Zacks Rank #2 (Buy).
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