Zions (ZION) Q3 Earnings Beat Estimates As Revenues Improve

Zions Bancorporation’s (NASDAQ:ZION) third-quarter 2019 earnings per share of $1.17 easily surpassed the Zacks Consensus Estimate of $1.08. Moreover, the figure compared favorably with the prior-year quarter’s earnings of $1.04.

Results benefited from an improvement in revenues along with a marginal decline in expenses. Also, the company’s balance sheet position remained strong. However, it recorded provision for credit losses in the quarter against recoveries in the year-ago period.

Net income attributable to common shareholders was $214 million, down marginally year over year.

Revenues Improve, Costs Decline Marginally

Net revenues for the quarter under review were $713 million, up 1.7% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate of $709.3 million.

Net interest income was $567 million, up marginally from the prior-year quarter. The rise can be primarily attributed to loan growth, and increase in interest and fees on loans, partially offset by higher interest expenses. However, net interest margin contracted 15 basis points (bps) year over year to 3.48%.

Non-interest income amounted to $146 million, up 7.4% from the year-ago quarter. The increase was primarily driven by rise in customer-related fees. Moreover, the company recorded net securities gains in the quarter against net securities losses reported in the year-ago quarter.

Adjusted non-interest expenses were $415 million, down marginally from the prior-year quarter.

Efficiency ratio was 57.3%, down from 58.8% reported a year ago. A fall in efficiency ratio indicates improvement in profitability.

Balance Sheet Strong

As of Sep 30, 2019, net loans held for investment were $48.3 billion, up from $48.1 billion recorded at the end of the prior quarter. Total deposits were $56.1 billion, up from $54.3 billion recorded at the end of the second quarter.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 16 bps year over year to 0.48%.

However, net loan and lease charge-offs were $1 million at the end of the reported quarter against recoveries of $1 million in the prior-year quarter. Further, provision for credit losses was $10 million against recoveries of $11 million in the year-earlier quarter.

Capital Ratios Deteriorate, Profitability Ratios Mixed

Tier 1 leverage ratio was 9.3% as of Sep 30, 2019, compared with 10.5% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 11.4%, down from 13.1% in the year-ago quarter.

At the end of the third quarter, return on average assets was 1.25%, down from 1.33% as of Sep 30, 2018. However, as of Sep 30, 2019, return on average tangible common equity was 14.2%, in line with the year-ago quarter.

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Share Repurchases

During the quarter, Zions repurchased $275 million worth of shares.

Our Viewpoint

The company remains well positioned for top-line growth, supported by consistent rise in loans and deposits along with its efforts to improve operating efficiency. Moreover, given a solid balance sheet position, it is expected to continue with its efficient capital deployments, thereby enhancing shareholder value. However, elevated expense levels will likely hamper bottom-line growth. Moreover, the company's significant exposure toward risky loan portfolios remains a concern.