Zions' (ZION) Q1 Earnings And Revenues Surpass Estimates

Zions Bancorporation (NASDAQ:ZION) reported first-quarter 2017 earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 54 cents. Moreover, the figure was significantly higher than 38 cents earned in the prior-year quarter.

The results largely benefited from top-line growth and decline in provisions, partially offset by higher adjusted non-interest expenses. While loan and deposit balances showed improvement, credit quality displayed a mixed picture.

Net income applicable to common shareholders came in at $129 million, up 63.3% from the year-ago quarter.

Revenues Rise, Costs Escalate

Net revenues (FTE basis) were $621 million for the quarter, up 8.9% year over year. Moreover, the figure marginally beat the Zacks Consensus Estimate of $620 million.

Net interest income increased 7.9% year over year to $489 million. The rise was mainly attributable to higher interest income and lower interest expenses. Further, net interest margin improved 3 basis points (bps) year over year to 3.38%.

Non-interest income amounted to $132 million, up 12.8% from the year-ago quarter. The improvement reflected an increase in all fee income components except loan sales and servicing income.

Adjusted non-interest expenses increased 3.8% from the year-ago quarter to $411 million. However, efficiency ratio was 65.9%, down from 68.5% a year ago. A fall in efficiency ratio indicates an improvement in profitability.

Healthy Balance Sheet

As of Mar 31, 2017, total loans, net of allowance, increased 0.3% from $42.2 billion at the end of the prior quarter. Also, total deposits rose 0.4% sequentially to $53.5 billion due to a temporary increase in client activity during the quarter end.

Mixed Credit Quality

The ratio of nonperforming lending-related assets to net loans and leases as well as other real estate owned increased 4 bps year over year to 1.37%. Further, net charge-offs were $46 million, up from $36 million from the year-ago quarter.

However, the provisions for loan losses fell 45.2% from the year-ago quarter to $23 million.

Capital Ratio Deteriorates, Profitability Improves

Under the Basel III rules, Tier 1 leverage ratio was 10.8%, as of Mar 31, 2017, down from 11.4% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 13.6% compared with 13.9% at the end of the year-ago quarter.

Return on average assets was 0.88% as of Mar 31, 2017, up from 0.62% as of Mar 31, 2016. Also, as of Mar 31, 2017, tangible return on average tangible common equity was 8.8%, up from 5.6% a year ago.

Our Viewpoint

Zions remains well positioned for future growth based on consistent improvement in loans and deposits. Moreover, following the latest interest rate hikes, margin pressure for the company seems to be easing. Further, its persistent cost control initiatives and debt reduction should continue to support the bottom line.

However, a risky loan portfolio and regulatory restrictions are concerns. Also, concentration risk could hurt the company’s financials.

Currently, Zions carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other banks, Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) and Trustmark Corporation (NASDAQ:TRMK) are slated to announce their first-quarter earnings on Apr 26 while SVB Financial Group (NASDAQ:SIVB) will announce its first-quarter results on Apr 27.

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