Effective cost control aided
) second-quarter adjusted earnings of 57 cents. The figure
comfortably beat the Zacks Consensus Estimate of 46 cents, and was
much higher than the prior-year quarter figure of 31 cents.
Results benefited from a decline in non-interest expenses, which
were however, partly offset by a fall in revenues and increase in
provision for loan losses. While profitability ratios were strong,
credit quality was a mixed bag and capital ratios deteriorated.
Growth in loans and deposits acted as tailwinds for the quarter.
After considering certain non-recurring items, Zions' net earnings
applicable to common shareholders were $104.5 million, up 88.7%
from the year-ago quarter.
Behind the Headlines
Zions' total revenue came in at $588.0 million, down 4.9% from the
prior-year quarter, but surpassing the Zacks Consensus Estimate of
Net interest income (NII) decreased 3.3% year over year to $416.3
million. Additionally, net interest margin (NIM) was 3.29%, down 15
basis points (bps).
Non-interest income was $124.9 million, slightly down from the
year-ago quarter. The fall in non-interest income is mainly the
result of a decrease in service charges and fees on deposit
accounts, capital markets and foreign exchange, dividends and other
investment income, loan sales and servicing income, and a 100% fall
in noncredit-related losses on securities not expected to be sold
and other income. These were, however, nearly offset by rise in
other service charges, commissions and fees, wealth management
income, net equity securities gains, net fixed income securities
gains, and fall in the fair value and non-hedge derivative loss and
nil impairment losses on investment securities.
Non-interest expenses decreased 10.1% year over year to $406.0
million. Notably, unlike the reported quarter, non-interest
expenses in the prior-year quarter included debt extinguishment
cost of $40.3 million.
Total loans, including FDIC supported loans, were $39.6 billion, up
3.8% from the prior-year quarter. Total deposits climbed 1.5% to
$45.7 billion from the year-ago quarter.
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 62 bps year over
year to 0.95%. However, net loans and lease charge-offs increased
9.1% from the prior-year quarter to $6.20 million.
Allowance for credit losses as a percentage of loans and leases was
1.95%, down 45 bps year over year. Nevertheless, provisions for
loan losses increased significantly year over year to $54.4
Profitability and Capital Ratios
Zions' capital ratios deteriorated but profitability ratios showed
improvement. As of Jun 30, 2014, Tier 1 leverage ratio was
11.00% versus 11.75% in the prior-year quarter. Likewise, Tier 1
risk-based capital ratio was 12.96% compared with 14.30% as of Jun
Return on average assets was 0.87% against 0.61% in the prior-year
quarter. Moreover, as of Jun 30, 2014, tangible return on common
equity was 9.07% compared with 5.73% in the prior-year quarter.
We believe that consistent improvement in loans and deposits as
well as efficient expense management would continue to drive bottom
line in the forthcoming quarters.
However, a still low interest rate scenario will persistently
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).
Among other West banks,
) reported in-line earnings of 58 cents per share.
Central Pacific Financial Corp.
) is scheduled to report on Jul 24.
Bank of Commerce Holdings
) is slated to report on Jul 30.
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