) reported adjusted second-quarter 2013 earnings of 44 cents per
share, marginally surpassing the Zacks Consensus Estimate of 42
cents. However, this compared unfavorably with the prior-quarter
earnings of 49 cents.
Better-than-expected results were aided by top-line growth,
partially offset by a rise in operating expenses. Moreover,
continuously improving credit quality, capital ratios as well as
stable deposits and loans were the tailwinds. However,
profitability ratios deteriorated.
After considering certain non-recurring items, Zions' net income
applicable to common shareholders was $55.4 million or 30 cents
per share. However, this lagged the prior-quarter earnings of
$88.3 million or 48 cents per share.
Behind the Headlines
Zions' total revenue was $618.4 million, up 2.0% from $606.0
million in the previous quarter. Moreover, total revenue
surpassed the Zacks Consensus Estimate of $551.0 million.
Net interest income increased 3.0% sequentially to $430.7
million. Additionally, net interest margin remained stable at the
last-quarter level of 3.44%. The increase in net interest income
was mainly due to the better-than-expected performance of
FDIC-supported loans and reduced interest expense.
Non-interest income was $125.2 million, up 3.2% from $121.2
million in the prior quarter. The increase was largely
attributable to reduced other-than-temporary impairment (OTTI) on
collateralized debt obligation (CDO) securities compared to the
Non-interest expenses reached $451.7 million, rising 13.7%
sequentially. The increase was mainly due to higher debt
extinguishment cost, increase in provision for unfunded lending
commitments and professional and legal services, partially offset
by lower salary and employee benefit expense.
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 23 bps
sequentially and 95 bps year over year to 1.57%.
Further, net loan and lease charge-offs were $5.7 million as of
Jun 30, 2013, down 68.2% from the prior quarter and 86.9% from
the year-ago quarter. Net charge-offs decreased mainly in
commercial and industrial, owner occupied, and term commercial
real estate loans.
The allowance for credit losses as a percentage of net loans and
leases was 2.40% at the end of the quarter, down 10 bps
sequentially and 51 bps year over year. Moreover, the recovery of
the provision for loan losses was $22.0 million, compared with
the recovery of $29.0 million in the prior quarter and a
provision of $10.9 million in the year-ago quarter.
Loans and Deposits
Loans and leases, excluding FDIC supported loans, were $37.8
billion, which nudged up from $37.3 billion in the previous
quarter. The increases largely came from commercial and
industrial, construction and 1-4 family residential loans.
Moreover, average loans and leases inched up 1.1% sequentially to
Average deposits inched up 1.0% from the last quarter to $45.0
billion. The rise was primarily due to the higher level of
average non-interest bearing demand deposits.
Profitability and Capital Ratios
Zions' capital ratios showed improvement while profitability
ratios declined. As of Jun 30, 2013, tier 1 leverage ratio was
11.76% versus 11.55% in the previous quarter. Likewise, tier 1
risk-based capital ratio was 14.32% compared with 14.08% as of
Mar 31, 2013.
However, the annualized return on average assets declined to
0.61% from 0.83% in the prior quarter. As of Jun 30, 2013,
tangible common equity ratio also declined to 5.73% from 9.37% in
the prior quarter.
Zions remains well positioned for loan and deposit growth due to
it well-diversified portfolio. Moreover, the company's
cost-control efforts are expected to drive future growth.
However, the prevailing low interest rate environment,
asset-sensitive balance sheet and regulatory pressure remain
Zions currently carries a Zacks Rank #2 (Buy). Other banks that
are worth considering include
CoBiz Financial Inc
Umpqua Holdings Corporation
). All these carry a Zacks Rank #1 (Strong Buy).
COBIZ FINL INC (COBZ): Free Stock Analysis
PREFERRED BANK (PFBC): Free Stock Analysis
UMPQUA HLDGS CP (UMPQ): Free Stock Analysis
ZIONS BANCORP (ZION): Free Stock Analysis
To read this article on Zacks.com click here.