Zions (ZION) Down 1% as Q2 Earnings & Revenues Lag Estimates

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Shares of Zions BancorporationZION lost nearly 1% following the release of its second-quarter 2018 results, after the market closed. Earnings of 89 cents per share lagged the Zacks Consensus Estimate of 92 cents. However, the figure compares favorably with the prior-year quarter's earnings of 73 cents.

Results, to a great extent, benefited from improvement in both net interest income and non-interest income. Also, the quarter witnessed a strong balance sheet position. However, higher adjusted non-interest expenses and a rise in provisions were the headwinds.

Net income attributable to common shareholders was $187 million, indicating an increase of 21% year over year.

Revenues Improve, Costs Rise

Net revenues came in at $686 million, increasing 4% year over year. However, the top line missed the Zacks Consensus Estimate of $687.3 million.

Net interest income was $548 million, up 4% from the prior-year quarter. The rise was primarily attributable to increase in interest and fees on loans, partially offset by higher interest expenses. Further, net interest margin rose 4 basis points (bps) year over year to 3.56%.

Non-interest income amounted to $138 million, growing 5% from the year-ago quarter. The increase primarily stemmed from higher customer-related fees, and dividends and other investment income.

Adjusted non-interest expenses were up 5% year over year to $420 million. Higher provision for unfunded lending commitments and advertising costs mainly led to the increase.

Efficiency ratio was 60.9%, up from 59.8% reported a year ago. A rise in efficiency ratio indicates deterioration in profitability.

Strong Balance Sheet

As of Jun 30, 2018, total net loans came in at $44.7 billion, relatively stable from the end of the prior quarter. Total deposits increased 1.2% from the prior-quarter end to $53.6 billion.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases, as well as other real estate owned, decreased 35 bps year over year to 0.77%. Also, net loan and lease recoveries were $12 million against charge-offs of $7 million in the prior-year quarter.

However, provisions for credit losses were $12 million, up 20% year over year.

Capital Ratios Deteriorate, Profitability Ratios Improve

Tier 1 leverage ratio was 10.5% as of Jun 30, 2018, on par with the prior-year quarter level. Tier 1 risk-based capital ratio was 13.3%, down from 13.4% in the year-ago quarter.

At the end of the April-June quarter, return on average assets was 1.19%, up from 1.03% as of Jun 30, 2017. Also, as of Jun 30, 2018, tangible return on average tangible common equity was 12.4%, up from 10.2% a year ago.

Share Repurchases

During the reported quarter, Zions repurchased $120 million worth of shares.

Our Viewpoint

Zions' revenue growth looks encouraging. We are also impressed with its ability to increase net interest income. Further, exemption from annual stress tests will 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 are 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.

Performance and Upcoming Release Date

First Republic Bank's FRC second-quarter 2018 earnings per share came in at $1.20, outpacing the Zacks Consensus Estimate of $1.15. Improvement in revenues was supported by rise in loans and deposits. However, net interest margin and higher expenses posed concerns.

East West Bancorp's EWBC second-quarter 2018 adjusted earnings per share of $1.18 surpassed the Zacks Consensus Estimate of $1.09. Results primarily benefited from improvement in both net interest income and non-interest income. However, elevated expenses and higher provision for credit losses were the undermining factors.

SVB Financial Group SIVB is slated to report results on Jul 26.

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Zions Bancorporation (ZION): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: ZION , SIVB , EWBC , FRC

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